Turkey inflation above 16% in test for new central bank chief

ISTANBUL (Reuters) – Turkey’s annual inflation climbed above 16% in March for the first time since mid-2019, data showed on Monday, piling pressure on new central bank governor Sahap Kavcioglu to maintain tight policy after his surprise appointment.

Consumer prices were up 16.19% year-on-year, higher than 16.11% in a Reuters poll and 15.61% in February. Inflation remains well above a 5% official target and has been in double digits for most of the past four years.

Month-on-month CPI inflation was 1.08%, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 1.04%.

The former central bank governor, Naci Agbal, had raised the policy rate to 19% from 10.25%. But he was ousted on March 20 – after only four months on the job and two days after a last rate hike – prompting a 12% drop in the lira to near record lows.

President Tayyip Erdogan has abruptly ousted four bank chiefs in less than two years, hurting Turkey’s monetary credibility and contributing to the currency’s long-term decline, which in turn has driven up overall inflation via imports.

Kavcioglu has in the past criticised tight policy, including making the unorthodox claim shared by Erdogan that high rates cause inflation. Yet he has told investors and bankers in recent weeks rates must remain high due to high inflation.

The producer price index rose 4.13% month-on-month in March for an annual rise of 31.2%, the data showed.

The monthly CPI price rise was underpinned by demand in the health, education and hospitality groups, including restaurants, after coronavirus measures were eased.

Annual rises were driven by higher energy and import prices which raised transportation-related prices by nearly 25%.

According to a February forecast, the central bank expected a maximum of 17% inflation in March and a bit more in April. Analysts predict it will rise through April, when Goldman Sachs expects it to peak at 18%.

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