(Bloomberg) -- Turkey’s consumer prices are increasing at a slower pace, boosting expectations that the central bank might begin cutting interest rates as early as this month.
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Annual inflation probably fell to 46.6% in November from 48.6% the previous month, according to the median estimate of analysts surveyed by Bloomberg. Monthly price gains — the central bank’s preferred gauge — likely eased by a percentage point to 1.9% during the same period, according to another survey.
The slowdown in recent months was driven by the services sector and might provide an opportunity for Governor Fatih Karahan to start reversing last year’s tightening that took the benchmark rate to 50%. The monetary policy committee, led by Karahan, indicated last month that improving expectations could soon justify a rate cut.
What Bloomberg Economics Says...
“Turkey’s headline inflation will continue along its deceleration path — only this time with a sharp easing in the underlying dynamics. We expect the Central Bank of the Republic of Turkey to take this as a green light for launching its anticipated easing cycle at the December policy meeting.”
— Selva Bahar Baziki, economist. Click here to read more.
Lower borrowing costs could provide a much-needed boost to the Middle East’s largest non-oil economy, after it entered a technical recession in the third-quarter of this year due to the central bank’s policy stance.
A wild card for the monetary authority is food inflation. In Istanbul, food prices rose by 3.3% last month, faster than a general retail index tracking living costs in Turkey’s largest city. The central bank has also said it expects unprocessed food prices to remain elevated due to supply constraints.
Such price pressures remain above the bank’s projections, forcing the monetary authority to wait for at least two consecutive drops in monthly inflation figures before rate cuts can be delivered, according to Goldman Sachs economists including Clemens Grafe and Basak Edizgil.
Monthly inflation in November and December should remain under 3% for the central bank to meet its recently revised year-end annual inflation forecast of 44%.
Cost of services, which stabilized only in October, is likely to remain subdued with President Recep Tayyip Erdogan signaling a limited increase in minimum wages for next year.
November inflation data is due to be released on Tuesday. Turkey’s next rates decision is scheduled for December 26.
--With assistance from Beril Akman.
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