ISTANBUL, Oct 3 (Reuters) – Turkey’s annual inflation hit a new 24-year high of 83.45% in September, data released on Monday, still below forecasts, after the central bank surprised markets by lowering rates twice in the past two months. .
Despite soaring prices, the central bank is expected to cut its benchmark rate again this month, after President Tayyip Erdogan called for single-digit interest rates by the end of the year.
Inflation has surged since November last year as the pound slumped following the central bank’s key rate cut, in an unorthodox easing cycle long sought by Erdogan.
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On a month-to-month basis, consumer prices rose 3.08%, the Turkish Statistical Institute said, less than a Reuters poll forecast for 3.8%. Annually, consumer price inflation was forecast at 84.63%.
It was the highest annual figure since July 1998, when it stood at 85.3% and Turkey struggled to end a decade of chronically high inflation.
September inflation was driven by transport prices, which jumped nearly 118% year-on-year, while food and non-alcoholic beverage prices jumped 93.05%.
Despite the relentless rise in inflation, Erdogan said last week that he had advised the central bank to lower its key rate at its upcoming meetings, a day after saying he expected interest rates drop to single digits by the end of the year.
JP Morgan said inflation should remain in the “abnormally high range until policies become orthodox”, adding that it expects the easing cycle “to continue until ‘he can no longer’.
“Monetary policy decisions have become disconnected from macroeconomic fundamentals and have become almost irrelevant to near-term inflation dynamics,” he said in a note.
“RECESSIVE FORCES”
Global recessionary forces, their impact on commodity prices and the pace of depreciation of the lira will be the main determinants of inflation, JP Morgan added.
After the data, the lira was trading at 18.5620 against the dollar, weakening from a close of 18.5060 on Friday. It stood at 18.5660 at 1302 GMT.
The currency has been less responsive to economic data and comments from Erdogan than in the past, largely because the central bank has taken on a more dominant role in the foreign exchange market since December.
Goldman Sachs said it now expects the central bank to cut its key rate by 100 basis points every month until the end of the year.
The bank has cut its policy rate by 200 basis points to 12% over the past two months, bucking a global tightening cycle despite the sustained rise in inflation, soaring oil prices energy and the staggered effect of the fall in the lira.
Last year’s rate cuts triggered a currency crisis that wiped out 44% of the lira’s value against the dollar in 2021. It has weakened by around 29% this year to new lows historical.
Last week’s Reuters poll showed annual inflation is expected to fall to 72% by the end of 2022.
The government said inflation would decline with its economic program prioritizing low rates to boost production and exports in a bid to achieve a current account surplus.
The National Producer Price Index rose 4.78% month-on-month in September, for an annual increase of 151.50%.
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Reporting by Berna Suleymanoglu, Halilcan Soran in Gdansk and Marc Jones in London; Written by Daren Butler; Editing by Jonathan Spicer, Andrew Heavens and Josie Kao
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