Market News

By Beril Akman

(Bloomberg) -- Turkey’s annual inflation in December likely eased less than the central bank projected, just as policymakers have started to set the stage for a more accommodative stance in the new year.

Annual growth in consumer prices slowed to 45.2% in December from 47.1% a month earlier, according to the median forecast in a Bloomberg survey of analysts. The data is due Friday. The central bank earlier raised its year-end estimate to 44% from 38% in November. 

The central bank was at pains in 2024 to cool off demand and gain a hold over inflation expectations, raising borrowing costs to as high as 50%.

Still, the central bank delivered a bigger-than-anticipated rate cut of 250 basis points at the end of December, even as it maintained a hawkish stance by narrowing the difference between its lending and borrowing rates and warning it would remain cautious about future moves. 

The monetary authority justified lowering borrowing costs — the first time since February 2023 — by citing preliminary data showing an improvement in services inflation and the underlying trend in monthly prices in December.

Analysts expect monthly inflation to slow to 1.60% in December, according to the Bloomberg poll. Seasonally-adjusted data, closely monitored by the central bank, will be published on Monday. 

President Recep Tayyip Erdogan, who had been unusually quiet about monetary policy since allowing for a more orthodox approach, said on Saturday that rates would “definitely” be reduced in 2025. Erdogan’s comments could reignite risks of a policy path that’s incoherent with inflation, economist Haluk Burumcekci later said in a note.

What Bloomberg Economics Says...

“The central bank’s larger-than-expected rate cut launching its easing cycle suggests the political ask related to lower borrowing costs is carrying more weight for policymakers than the elevated inflation outlook. And that’s after factoring in the narrowing interest rate corridor — the second act from the policy decision — which we think is meant to dampen the dovish shock from the rate cut. Taken together, all this flags a downside risk to our outlook for gradual easing to an end-2025 policy rate of 25%.”

— Selva Bahar Baziki, economist. Click here to read more.

Accommodation from the fiscal side is poised to help cool down price growth further. Turkish Finance Minister Mehmet Simsek said on Sunday that tax increases on fuel and tobacco would be adjusted enough not to “endanger” the central bank’s inflation outlook, which at present foresees prices easing to 21% by the end of 2025. This week, the government announced a 6% hike in the special consumption tax on fuels, slightly less than the automatic increase tied to producer inflation.

A 30% increase in the minimum wage set to take effect this year was another concrete example of supportive fiscal policy, remaining in line with both policymakers’ and analysts’ inflation path. 

--With assistance from Paul Wallace.