Turkey’s consumer price index (CPI) inflation officially stood at a 15-month high of 67% y/y in February versus 65% y/y in January and 38% y/y in June last year, the Turkish Statistical Institute (TUIK, or TurkStat) said on March 4 (chart).

TUIK also posted 5% m/m official inflation for February versus 7% m/m for January.

On February 5, when the January data was announced, Turkey’s finance minister, Mehmet Simsek, said in a tweet that TUIK would release significantly lower monthly inflation rates starting from February.

At 67% y/y, Turkey remains in fifth place in the world inflation league.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 122% y/y for February. The ENAG figure recorded for January was 129% y/y, while for June last year it was 109% y/y.

TUIK also gave an official figure of 47% y/y for producer price index (PPI) inflation in February.

Following the national elections held in May last year, another wave of currency depreciation coupled with widespread tax hikes dynamited pricing behaviour in the country once again.

In June 2023, following the post-election appointment of Turkey’s new economic team led by Simsek, the Erdogan regime launched a tightening process that is ongoing. The policy rate was hiked to 45% by January from 8.5% in June.

At 45%, the authority assessed that the monetary tightness required to establish a disinflation course had been achieved.

The central bank is currently watching the lagged impacts of the delivered rate hikes while applying more macroprudential measures and sticking with non-capital controls that are in effect.

The authority is tracking the monthly official inflation series. In the event of a deterioration, it will consider more rate hikes.

It is also aiming for real appreciation in the Turkish lira (TRY), which means that the rise in the USD/TRY pair should remain below official inflation.

On February 8, the central bank kept its end-2024 official inflation estimate unchanged at 36% in its quarterly inflation report while its new governor, Fatih Karahan, said that the central bank saw the official series peaking at 73% in May.

According to central bank deputy governor Cevdet Akcay, the 36% end-2024 official inflation “target” was ambitious, but the regulator, he said, was setting out to be ambitious.

That tends to suggest that the central bank actually sees the end-2024 inflation figure at a higher level, but is nevertheless keeping to its previous estimate as the target level.

According to Karahan, average official monthly inflation will decline to 1.5% in 4Q24.

On May 9, the central bank will release its next inflation report and updated forecasts.

The next MPC meeting is scheduled for March 21. As things stand, the rate-setters look set to stick with the 45% benchmark.

“The upside surprise in Turkey’s inflation will not see the central bank hike rates further – just yet. With [inflation] gains exceeding 70% in store ahead, we expect policy rates to remain on hold at 45% through the third quarter of the year and additional tightening to be delivered via alternative tools in the meantime,” said Selva Bahar Baziki at Bloomberg Economics.

The global markets are not suggesting any notable turbulence. Turkey’s five-year credit default swaps (CDS) remain below the 300-level, while the yield on the Turkish government’s 10-year eurobonds remains below the 8%-level.

The USD/TRY rate is, meanwhile, still heading north. On September 21, the pair once again broke through the horizontal barrier set at the 27.00-level. The latest record high, registered on March 4, is 31.7029.

Since December 15, the Turkish government has returned to its ‘five/10 kurus (Turkish cents, pronounced as kurush) devaluation per day policy’. As of February 22, the daily tranche was being dug at around the 31.50-level. The annual rise in the USD/TRY pair rose to 67%.

Following the local elections to be held at the end of March, with Turkey’s policy rate at its peak, the course of the USD/TRY pair will be observed.

When the northward pull on the pair ends, the moment will be seen as signalling the beginning of portfolio inflows and the opening of the window for slowly building up lira papers.

On March 4, Simsek was interviewed on TV. He said that he expects significant capital inflows following the elections. He also said that he returned from Brazil two days ago and was still suffering from jet lag.

Ahead of May, when official inflation will peak, the beginning of rate cuts (currently expected in 4Q24) will be discussed.