Turkish inflation expectations accelerate, likely to keep rising in months ahead

Inflation expectations in Turkey accelerated as anticipated. The survey published showed that the 12-month forward expectation rose from around 14 percent to about 17 percent. Expectations about USD/TRY by the end of this year changed to 6 in this month’s survey from last month’s 6.50.

“We view both changes as a lagging reaction to the direction in which things have already moved – inflation accelerated to 24% in the last reading; inflation expectations are now playing catch-up”, stated Commerzbank.

The lira has appreciated recently and this is leading to changes in lira projections. Inflation expectations are likely to keep accelerating in months ahead until it has converged with the observed level.

“In other words, Turkey’s real interest rate will be reduced to zero once again unless CBT hikes rates on 25 October; and this would be true whether one uses observed inflation or inflation expectation.”, added Commerzbank