Turkey lira BOOST: TRY firms against US dollar as central bank slashes inflation forecast | City & Business | Finance



The Central Bank of the Republic of Turkey trimmed its inflation forecast for 2019 as Governor Murat Cetinkaya vowed to bring inflation down to single figures, in line with its target of 5 percent, in three years. In a move that appeared to please markets, the bank lowered its 2019 inflation forecast by 0.6 percent to 14.6 percent. The lira gained more than 0.5 percent from the news and was trading at 5.2767 to the US dollar at 3.30PM UK time. The bank has left its policy rate unchanged since September when it hiked 6.25 percentage points to 24 percent.

Concern over calls from President Tayyip Erdogan last year to keep rates low drove a sell-off in the lira in 2018.

The Turkish currency plunged by nearly 30 percent against the US dollar while nudging inflation to more than 25 percent in October.

Amid fears that the central bank would cut rates before local elections in March, Governor Murat Cetinkaya said the bank would keep a tight stance until it sees a “convincing improvement” in inflation.

Mr Cetinkaya said at a quarterly inflation report presentation in Ankara: “From inflation outlook to core inflation indicators and from headline inflation to the trends in pricing behaviour, we need to see improvement in all aspects of inflation.

“Current inflation levels require high caution.”

Piotr Matys, emerging markets forex strategist at Rabobank, said the “modest” reduction in inflation forecasts and the “reassurance” of a continued tight stance would help settle market concerns.

Mr Matys said: ”This is exactly the sort of message that I think many market participants wanted to hear from the central bank.

“The lira will basically continue to play an important role, and if the currency continues to appreciate or at least remain stable and inflation continues to fall, then perhaps the central bank could cut rates in Q2.”

Mr Cetinkaya also said the bank was reducing its 2020 year-end inflation forecast to 8.2 percent from 9.3 percent in its last report in October.

It left its forecast for food price inflation for 2019 and 2020 unchanged at 13 percent and 10 percent respectively.


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