JPMorgan has revised its year-end inflation forecast for Türkiye following the release of higher-than-expected August inflation data. The Wall Street bank now predicts a year-end inflation rate of 65 percent, up from the previous estimate of 62 percent. Additionally, the annual rate is expected to reach its peak at 73 percent in May 2024. JPMorgan also sees potential upside risks to its year-end policy rate forecast, which remains at 35 percent. The bank, however, foresees the central bank’s key interest rate to reach 45 percent by the end of next year. This projection is higher than the previous estimate of 40 percent.
According to JPMorgan’s Fatih Akcelik, the August Consumer Price Index (CPI) suggests a prolonged disinflation process. The bank expects persistent inflation and foresees further monetary tightening measures to address inflationary pressures after the March 2024 municipal elections.
Official data released earlier this week showed that Türkiye’s annual inflation rate climbed to 58.94 percent in August, surpassing expectations. This marked the second consecutive month of increase after a significant decline in the value of the lira and recent tax hikes.
Read more: Türkiye’s economy to slow to 2 percent from H1’s 3.8 percent growth
Inflation challenge
The sharp acceleration in Turkish inflation poses a challenge for the Central Bank as it attempts to tackle the country’s cost-of-living crisis through interest rate hikes. Transportation emerged as the primary driver of the monthly consumer price surge, rising by 16.61 percent due to consecutive fuel price hikes. Household equipment and food prices were the second and third contributors to the surge, increasing by over 9 percent and 8 percent respectively.
Doubling exposure
In related news, Bloomberg reports that the World Bank is engaged in advanced discussions to potentially double its exposure to Türkiye, aiming to stabilize the country’s non-oil economy. The discussions include a potential pledge of up to $18 billion for projects over the next three years, in addition to the existing $17 billion programs already in place. The funding would encompass direct lending to the government and support for the private sector.
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