Turkey's central bank raised its year-end inflation forecasts for this year and next to 65% and 36% respectively, Governor Hafize Gaye Erkan said on Nov. 2, vowing to continue gradual monetary tightening.
The bank's previous inflation report three months ago forecast year-end inflation of 58% in 2023 and 33% next year.
Inflation hit a 24-year peak of 85% last year and surged again in recent months as the lira weakened for a third year in a row in the wake of an unorthodox rate-cutting policy backed by President Recep Tayyip Erdoğan despite soaring prices.
Since Erkan was appointed governor in June, the bank has implemented an abrupt U-turn in policy, raising interest rates by 2,650 basis points as part of a wider policy shift towards greater orthodoxy after May elections.
"Getting high and volatile inflation under control will be a long and difficult process. We will continue to use all tools available in a determined way to ensure disinflation," Erkan said in a speech.
She told a press conference to present the central bank's (CBRT) inflation report that disinflation would start after it peaked at around 70%-75% in May and that monetary tightening would continue until there was a visible improvement in inflation.
"Pretty consistent message being sent now from the CBRT," said Timothy Ash, senior strategist at BlueBay Asset Management, referring to the central bank.
"Trust us, we are tightening and more should happen after the local elections and inflation should get down to a 30% handle at end of 2024," he said of the bank's message.
The lira traded at 28.35 at 16.45 GMT, little changed on the day. It has weakened some 33% this year.
The central bank raised its policy rate by 500 basis points to 35% on Oct. 26, tightening aggressively for a third straight month as it steps up efforts to rein in inflation, which hit 61.5% in September.
Erkan said the rise in inflation was driven by large shocks happening simultaneously and their inflation impact was largely completed, adding that the bank maintained a 5% medium-term target.
President Erdoğan chose former Wall Street banker Erkan as central bank chief after his May re-election. She has led a policy U-turn to relieve an economy strained by depleted foreign exchange reserves and surging inflation expectations.
Under former Governor Şahap Kavcıoğlu, the central bank slashed its policy rate to 8.5% from 19% in 2021, based on Erdoğan's economic programme. The cuts sparked a currency crisis and the lira weakened 44% in 2021 and 30% in 2022.
In past years, Erdoğan has repeatedly criticized tight monetary policy, describing himself as an enemy of interest rates, but he has recently said tight policy would help bring down inflation.