Turkish inflation down

Turkey's inflation eased due to a slowdown in consumer prices in November, yet the central bank is still pressured to maintain strict monetary policy after recent months saw the lira decline to rates previously unseen.

The annual inflation rate declined 7 per cent, mostly due to low food prices.

Meanwhile, the central bank is headstrong in the maintenance of high borrowing costs, a policy put in place in November to stem the steep depreciation of the lira.

President Recep Tayyip Erdogan has pressured the bank to cut borrowing costs, as investors are concerned that central bank policy makers will continue to introduce more rate increases.

“The weaker lira will take its toll on prices from December, when consumer inflation will likely start accelerating again. If inflation is an indicator, Turkey needs to increase interest rates, but it will prove to be difficult because of concerns over growth," said Enver Erkan, Kapital FX economist.

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Despite recent policy changes, the lira declined 0.4 per cent to 3.5354 per US dollar. It has declined 11 per cent over the past month, the most among all emerging markets.

“For now, the lira is likely to remain the key driver of interest rate decisions in Turkey. But at the margin, today’s data, which are likely to be followed by the release of extremely weak third-quarter gross domestic product figures next Monday, may prompt the central bank to leave interest rates on hold," said William Jackson, senior emerging markets economist at Capital Economics.

Read more at Bloomberg.