Protecting fixed income groups and pensioners from the impact of inflation, and taking measures to meet the needs of the business world quickly and proactively are also among the priorities for the government, Nebati said.

Meanwhile the Turkish Statistical Institute (TurkStat) has said that the country’s annual inflation rate rose by 1.42 percentage points from 19.89 per cent in October to 21.31 per cent in November.

A day earlier, Fitch Ratings revised the Outlook on Turkey’s Long-Term Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at ‘BB-’. “The central bank’s premature monetary policy easing cycle and the prospect of further rate cuts or additional economic stimulus ahead of the 2023 presidential election have led to a deterioration in domestic confidence, reflected in a sharp depreciation of the Turkish lira, including unprecedented intra-day volatility, and rising inflation. These developments create risks to macroeconomic and financial stability and could potentially re-ignite external financing pressures,” the ratings agency said.

The central bank lowered its main policy rate to 15 per cent in November (cutting by a total of 400bp since September) despite rising inflation and the tightening of external financing conditions. As a result, real rates ex-post have fallen deep into negative territory (-4.9 per cent) from 2.75 per cent in March, weakening domestic confidence and increasing demand for FX.

“The central bank has repeatedly changed its policy guidance in recent months from a commitment to maintaining positive real rates to focusing on core inflation dynamics, and more recently on narrowing the CAD. Fitch considers that the recently announced central bank intervention in the FX market, if sustained, will not by itself address the main causes behind the depreciation pressures and risks further undermining the already weak central bank international reserves’ composition,” Fitch said.

The lira (Turkish currency) has depreciated by 46 per cent against the US dollar since the beginning of the year and 38 per cent since September, including days of large intra-day volatility. “Negative real rates, the absence of policy guidance, statements by government officials arguing for a weaker lira as part of an economic development strategy and rising inflation and inflation expectations will maintain pressure on the currency,” the Fitch report added.

Fitch has projected Turkey’s inflation to reach 25 per cent by end-2021 and is expected to remain one of the highest among rated sovereigns, averaging 20 per cent in 2022-2023.

Fibre2Fashion News Desk (RKS)