Turkey Inflation to Remain High Despite Expected Rate Hikes after Election

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According to a Reuters poll conducted on Monday, Turkish inflation is expected to fall to 46.4% by the end of 2023, while the policy rate is anticipated to increase to 24% in the next quarter following the forthcoming elections. The poll results indicate that Turkey's current inflation level, which surged above 85% last year, continues to pose a significant challenge to President Tayyip Erdogan's 20-year rule. The policy rate cuts were part of Erdogan's growth and investment prioritization policy, which led to an unorthodox easing cycle in late 2021.

Despite an expected increase in interest rates, the inflation rate is forecasted to remain high throughout the year, falling only to 46.4% at the end of 2023, the poll found. The poll further revealed that the current account deficit in 2023 is expected to be 4.4% of Turkey's gross domestic product (GDP), compared to the government's forecast of 2.5%.

The expected interest rate hikes, as indicated by the poll results, are expected to help bring inflation under control. However, with inflation remaining elevated through the year, it is uncertain if the hikes will be sufficient to curb inflation. Nevertheless, economists expect a shift towards more orthodox policies after the May 14 election, which may assist in stabilizing the economy. The poll results suggest that Turkey's GDP growth is expected to be 2.6% this year, compared to the government's forecast of 5%.

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