Central Bank forecasts 6.5 percent yearend inflation

ISTANBUL- Hürriyet Daily News

Central Bank Gov Başçı speaks at a conference on the quarterly inflation report. AA photo

The Turkish Central Bank yesterday updated its yearend inflation forecast for 2012 to approximately 6.5 percent from a previous prediction of 5.2 percent.

“We predict that the inflation, with a 70 percent probability, will be between 5.1 and 7.9 percent, with a median of 6.5 percent at the end of 2012, and for the end of 2013 the inflation will be between 3.3 and 6.9 percent with a median of 5.1 percent,” Central Bank Gov. Erdem Başçı said yesterday at a press conference to announce the bank’s quarterly inflation report.

The Turkish Lira climbed to its strongest level in 2.5 months after Başçı said he foresaw no need to intervene in the currency’s advance this year. The lira appreciated nearly 1 percent to 1.69 per dollar during midday trade in Istanbul, the highest since Nov. 14 last year. The lira has gained 6.9 percent since Dec. 31.

The Central Bank has given itself a 1.5-year period to achieve the inflation target of about 5 percent, as it could cause unwanted economic volatility to decrease it to that level in 12 months’ time, Başçı said.

Başçı wrote an open letter to Deputy Prime Minister Ali Babacan on the big difference between the real 2011 inflation and the target.

Inflation in consumer prices was 10.45 percent in 2011, while the target was 5.5 percent.

“As a result of cumulative hikes in the exchange rate and commodity prices, the fast rise in unprocessed food prices and a change in administrated prices, inflation has hit high levels in 2011,” Başçı said.

Import prices for the lira from December 2010 to the end of December 2011 had surpassed 40 percent and this contributed almost 5 points to last year’s inflation, according to the Central Bank’s letter. Hikes in prices for tobacco products as a result of a tax regulation enacted last October also contributed 1.2 points. Unprocessed food prices contribute nearly 2 points to annual inflation.