UPDATE - Turkish Central Bank raises 2021-22 inflation forecast

UPDATES WITH MORE REMARKS FROM CENTRAL BANK GOVERNOR, CHANGES HEADLINE, DECK

By Tuba Sahin and Yunus Girgin and Belgin Yakisan Mutlu

ANKARA (AA) – Turkey's Central Bank on Thursday increased the country's year-end inflation forecast to 12.2% for this year, up from 9.4% in its previous report.

The figure is expected to fluctuate between 10% and 14.4% through the end of this year, Sahap Kavcioglu, the bank's governor, told a virtual meeting held to release the bank's second quarterly inflation report in 2021.

The bank also raised the inflation forecast for 2022 to 7.5%, up from 7%, while keeping the 5% target for 2023.

Kavcioglu underlined that the upward revision was stemmed from an increase in assumptions for Turkish-lira-denominated import prices, output gap and food inflation.

High-frequency data, along with credit developments and normalization period, indicated that the economic activity continued its strong course, Kavcioglu said, adding: "However, depending on the course of the pandemic and the vaccination process in the upcoming period, there are risks on the economic activity in both directions."

The governor stressed that the economic activity is expected to slow down in the second quarter of this year with the tightening of financial conditions and new lockdown measures.

The investment appetite of the industrial firms gives positive signals despite the limiting impact of the pandemic on some service sectors' employment, Kavcioglu noted, saying the investment demand, which began to recover in the second half of 2020, strengthened in the first quarter of this year.

"In this period, it was observed that the demand for investment loans increased and investment tendency especially in large firms strengthened," the Central Bank chief added.

Answering a question of whether there will be an interest rate cut this year, Kavcioglu reiterated that it is a biased approach to expect an interest rate cut in April and the following months.

The monetary policy decisions were made by the MPC taking into account the existing information and data set for macroeconomic developments, he said.

The Central Bank will continue to keep policy interest rates at an above-inflation level to maintain a strong disinflation effect, Kavcioglu stated, adding that the bank will consider targeted and expected inflation rate when determining the monetary policy.

"Let me be very clear that there is no change in our tight stance," he vowed.