Turkey raises inflation forecast to 10.5 percent after lira slumps to record

Turkey’s government increased its inflation forecast for this year to 10.5 percent after the lira weakened to successive record lows against the dollar, pressuring prices.

The government increased its estimate from a previous 8.5 percent, according to a statement by Treasury and Finance Minister Berat Albayrak on Tuesday. Albayrak was introducing the country’s new three-year economic programme to reporters in Ankara.

The revised estimate for consumer price inflation is higher than the central bank’s benchmark interest rate of 10.25 percent. The bank raised the rate from 8.25 percent in a decision last week citing inflationary pressures. Annual price increases, which stood at 11.8 percent in August, were expected to slow to 8 percent next year and to 4.9 percent in 2023, Albayrak said.

Albayrak spoke as the lira hit a fresh record low against the dollar. It fell to as low as 7.8542 against the U.S. currency and traded down 0.5 percent at 7.8432 in early afternoon trading local time in Istanbul. Losses for the year total about 24 percent.

Investors have criticised the government and central bank for failing to tackle inflation in the chase for faster economic growth. The central bank is currently funding banks at an average interest rate of just under 11 percent through a policy that involves multiple rates.

The government's inflation forecast is lower than most analysts expect. Annual price increases are expected to slow to 11.5 percent by the end of the year and to 10.2 percent in 12 months, according to the average estimate in a monthly central bank survey of finance industry professionals and businessmen published in September.

Turkey expects the economy to grow by 0.3 percent this year, avoiding an annual contraction despite the outbreak of COVID-19, and to expand by 5.8 percent in 2021, Albayrak said.

The budget deficit is forecast to narrow to 3.5 percent of gross domestic product by the end of 2023, the minister said. The unemployment rate was seen at 10.9 percent in three years, he said.