Turkey could see consumer price inflation climb to over 25 percent in the coming months, with another potential interest rate cut by the country’s central bank in mid-December adding to upside risks for its forecasts, local media reported on Friday, citing a note by ratings agency Moody’s.
“We expect consumer price inflation, which stood at 21.3 percent in November, will accelerate to around 25 percent or even higher in the coming months,” the agency said in the note to clients on December 8.
Moody’s also stated that it forecast CPI at 17-18 percent at the end of 2022.
The agency indicated that the currency weakness had boosted dollarization, though so far “confidence in the banking system remains strong with no signs of deposit withdrawals.”
Persistently high inflation would also hurt economic growth, Moody’s further noted, now forecasting real GDP growth to slow to 4 percent next year from an estimated 11 percent for 2021.
Turkey’s central bank, which has cut the main interest rate every month since September, under heavy pressure from President Recep Tayyip Erdoğan, is expected to again take the same step when it meets on Dec. 16.
Erdoğan, who has sacked three bank governors since July 2019, is an enemy of high interest rates and has repeatedly called for lower rates to stimulate growth and production and boost exports.
Going against conventional economic thinking, the president claims high rates cause high inflation and has cast himself in a battle against an “interest rate lobby” seeking high rates, vowing to win the “economic war of independence.”
After a third consecutive interest rate cut, the Turkish currency lost nearly 30 percent in value in the last month against the US dollar, and more than 45 percent since the start of 2021. It traded at 13.9 to the dollar on Friday.