Inflation is expected to increase until June, partly reflecting base effects, the Central Bank of Turkey said in a presentation to economists on Wednesday.
Both nominal and real exchange rates depreciated significantly since May 2013, exchange rate pass-through remains to be the main driver of inflation as evidenced in the sharp increase in core inflation, the Bank underlined, adding that commodity prices are somewhat stable, partly limiting the cost-push pressures. The Bank, however, says that high volatility in unprocessed food prices continue to pose risks on inflation outlook. Against this backdrop, the tight monetary policy stance will be maintained until there is a significant improvement in the inflation outlook, the Bank reiterated.
As for economic activity, the Bank says industrial production remains robust as of January, yet leading indicators point to some deceleration. Resilience of production can be largely attributed to recent export growth driven by stronger external demand, especially EU demand, according to the bank. Adverse base effects due to gold trade will reverse in the forthcoming months, the Bank said. As a result of these factors, the Bank expects a significant improvement in the current account deficit for 2014.
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