ISTANBUL – The lira was firmer on Monday after Turkey’s finance minister was cited as saying inflation may rise to some 40% in the months ahead, lower than most estimates, and that interest rate hikes should not be expected by the central bank.
Surging prices are likely to remain a focus of market attention, with the central bank due to release its quarterly inflation report at a presentation by its governor on Thursday.
After an initial slip, the lira gained 0.6% to 13.39 by 0839 GMT. It tumbled 44% last year after the central bank slashed its policy rate by 500 basis points to 14%, but has steadied this month as the state managed FX more aggressively.
Finance Minister Nureddin Nebati met economists on Saturday and sources cited him as saying he expected $10 billion of forex deposits to be converted to lira due to a new law exempting such deposits from corporate tax.
According to a ministry statement, Nebati’s presentation focused on Turkey’s economic model which he said aimed to solve the current account deficit problem, overcome the middle income trap and lift Turkey up the global value chain.
According to four participants in the meeting, Nebati said the most important priority would be lowering inflation, which surged to 36% in December.
Economists see inflation reaching 50% in the first half of the year after the currency crisis last month.
Nebati was cited as saying inflation could instead rise to some 40% in the coming three months, before subsequently falling clearly, potentially to below 30% by year end.
He reiterated that inflation would fall to single digits by the time of elections set for mid-2023.
Participants cited him as saying there would be no turning back from the central bank’s current monetary policy and that a an interest rate hike should not be expected, adding that the policy rate’s importance had lessened.
He expected some $10 billion of forex bank deposits to be converted to lira due to a new law exempting such deposits from corporate tax, with Treasury assessments indicating this figure could reach $20 billion. Companies have some $90 billion worth of foreign currency bank deposits.
Nebati said lira deposits had reached 184 billion lira ($13.7 billion) under the scheme announced by President Tayyip Erdogan in December which compensates depositors for any loss in the value of the lira during the deposit’s duration.
He also said that repo funding could also be carried out at longer maturities of some 3-12 months, while credit policies in the future would be more selective, prioritising project loans.