Turkey's central bank has raised its inflation forecast for the end of 2022 to 65.2% from 60.4%, Central Bank Governor Sahap Kavcioğlu said, admitting the bank has been "not very successful" in containing prices, Reuters reported.
Turkey's annual inflation climbed to a 24-year high of 83.45 percent in September after the central bank surprised markets by cutting rates twice in two months. Central banks in other countries have tightened policy, making Turkey an outsider with a highly negative real rate.
The central bank cut rates again this month, by more than 150 basis points, after President Tayyip Erdogan called for single-digit interest rates by the end of the year. A similar cut will be made in November, ending the easing cycle.
The central bank governor said inflation peaked around 85 percent in late fall and then began to decline.
"Inflation will decrease rapidly on the back of continued supply, the maintenance of stability in exchange rates and the normalisation of pricing behaviour," Kavcioglu told reporters at a news conference in Ankara. "We cannot consider ourselves very successful. God willing, the decisions we have taken will make us successful in a short time."
The bank also raised its average inflation forecast for the end of 2023 from 19.2 percent to 22.3 percent.
Kavcioglu noted that two prerequisites for price stability are achieving a sustainable current account surplus and the dominance of the lira in households, firms and bank balance sheets.
After Kavcioglu's speech, the lira traded at 18.6905. Because of the unorthodox easing cycle Erdogan sought, the lira fell in value by 44% in 2021 and another 29% this year.
"We are going through a period of heightened pessimism regarding global growth," Kavcioglu said. "In such an environment, we believe financial conditions should be supportive."
"This is important to sustain the momentum we achieved in industrial production, which is the most important element of our structurally strengthened current account surplus capacity."
Erdogan is prioritizing exports, production and investment as part of an economic program aimed at reducing inflation by turning Turkey's chronic current account deficit into a surplus.
That goal is nearly unattainable this year because of rising energy prices and a global economic slowdown that is likely to hit Turkey's exports. The government does not expect a surplus in the next three years.
Turkish bank executives this week expressed concern to authorities that a year of new rules forcing them to buy government bonds could end up destabilizing the sector, even as it dramatically reduces spending on a big government spending plan ahead of next year's presidential and parliamentary elections.
