UNITED STATES (OBSERVATORY) – Turkey’s inflation rate rose in May, putting more pressure on the central bank to raise rates again amid concerns over the strength of the economy, official statistics showed on Monday.
Three weeks before the June 24 presidential and legislative elections, which are expected to boost Turkish President Recep Tayyip Erdogan, consumer prices rose 12.15 percent in May compared to the same month last year, the Institute of Statistics said.
Inflation hit 10.85 percent in April.
Investors are worried that the Turkish government will not take enough measures to tackle inflation amid signs of a worsening economy, especially after the Turkish lira lost 20 percent of its value over the past three months.
At the end of last month, the Central Bank of Turkey announced the raising of key interest rates and the completion of procedures to streamline monetary policy. This led the Lira to regain 0.7 of its value against the dollar, to record 4.6 in front of it.
On Friday, Moody’s, which has already cut Turkey’s rating to BA2 in March, said it was conducting an assessment that would pave the way for a possible further reduction due to uncertainty over the future of Turkey’s economic policy. The agency cited concerns about managing the economy and eroding investor confidence.
Erdogan has consistently called for cutting interest rates to stimulate growth, which experts say undermines the central bank’s independence.
Last week, Turkish Deputy Prime Minister Mohammad Shimshak and Central Bank Governor Murat Cetinkaya tried to reassure investors that Turkey’s top priority was “to fight inflation and current account deficits”, vowing to “accelerate structural reforms” after the election.
The central bank is due to meet again on Thursday, as it will remain focused on a new rate hike.
Shimsk told investors in London that the central bank was ready to raise interest rates again next month if inflation figures in May showed a marked acceleration.
But London-based Capital Economics said a sharp rise in inflation was unlikely to lead to a new interest rate hike.
“Despite the sharp rise in Turkish inflation in May … the rise in the lira over the past week makes us believe that the central bank will decide to keep (at current interest rates at the next monetary policy committee meeting),” it said in a note.