Turkey faces soaring uncontrolled inflation

By Anil Cengiz Bolukbasi

The TCMB (Central Bank of the Republic of Turkey) has revised its inflation forecasts, indicating a challenging economic landscape. In its fourth Inflation Report meeting of the year, the bank adjusted the year-end inflation prediction for 2023 to 65%, up from 58%, while the forecast for the end of 2024 is set at 36%, an increase from the previous 33%.

TCMB President Hafize Gaye Erkan, during a press conference in Ankara, explained that the revision aligns with the Medium-Term Program and is a response to the current economic conditions. Erkan emphasized the bank's commitment to price stability and the goal of reducing inflation to single digits.

The bank plans to continue its monetary tightening policy until a significant improvement in inflation is observed. Erkan noted early signs of balance in domestic demand and anticipates the beginning of a disinflation process by the second half of 2024.

Insights and critiques from economists

Economist Prof. Dr. Hayri Kozanoglu commented on the necessity of the revision, stating that previous forecasts lacked credibility, prompting the bank to adjust its outlook. However, he cautioned that even with the revision, the projected inflation is likely to fall short of the actual rates.

Kozanoglu highlighted the significant impact of increased interest rates on personal loans and credit cards, which, while potentially effective, could exacerbate the economic challenges for low-income groups. He predicted a potential rise in unpaid debts and increased financial strain for these individuals.

Future outlook and challenges

The TCMB, in its previous report, had anticipated a year-end inflation of 58%, with estimates ranging between 54% and 62%. Despite these projections, economists like Prof. Dr. Murat Birdal suggest that the Central Bank's forecasts continue to understate the likely inflation rates. Birdal anticipates that the year-end inflation for 2023 might reach around 70%.

Birdal criticized the Central Bank's approach, highlighting the lack of accountability for internal policy errors and an overemphasis on external factors influencing inflation. He expressed skepticism about the bank's learning from past mistakes, emphasizing the need for a more transparent and accountable monetary policy.