Turkish inflation is likely to see marginal improvement in coming quarters

Turkish inflation dipped to an annual rate of 8.8 per cent in February from a recent peak of 9.6 per cent at the start of the year. But future progress will be slow and this will further delay Turkey’s central bank, from simplifying monetary policy and moving to a unitary policy rate from the current hotchpotch arrangement.

Emerging markets countries which have suffered sharp FX pass-through in recent years are witnessing high inflation. Elsewhere, inflation dynamics are positive, and in some cases, central banks are struggling to avert deflation.

Turkey's Central Bank increased its inflation forecast rate in February by one point from 6.5 to 7.5 for 2016, having kept its “5 percent target” for the following three years. Finance Minister Naci Ağbal said on March 3 that monetary policy was not enough to reduce inflation and further measures will be taken, without specifying what they would be.

"Turkish inflation is likely to improve in coming quarters, but not by a huge margin. Based on our forecast, Turkey’s real interest rate will remain low and USD-TRY head towards 3.25 by this year-end," said Commerzbank in a research report.