Turkey’s consumer price index (CPI) inflation officially stood at 65% y/y in December versus 62% y/y in November and 38% y/y in June, the Turkish Statistical Institute (TUIK, or TurkStat) said on January 3 (chart).

At 65%, Turkey moved up to fifth place in the world inflation league.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 127% y/y for December. The ENAG figure calculated for November was 129% y/y, while for June it was 109% y/y.

TUIK also gave an official figure of 44% y/y for producer price index (PPI) inflation in December.

Following the national elections held in May last year, another wave of currency depreciation coupled with widespread tax hikes dynamited pricing behaviour in the country once again.

In June, following the appointment of Turkey’s post-election new economic team, the Erdogan regime launched a tightening process that is ongoing. It brought the policy rate to 42.50% in December from 8.5% in June.

On December 21, the monetary policy committee (MPC) announced its latest policy rate hike, of 250bp, in line with market expectations.

It said in an accompanying statement that it would end the cycle, which has delivered seven straight months of rate hikes, as soon as possible.

The next MPC meeting is scheduled for January 25. As things stand, it appears that the rate-setters will conclude the tightening cycle at 45% by bringing in another 250bp hike.

Beyond February, the authority will keep employing macroprudential measures and non-capital controls while awaiting the lagged effects of the rate hikes and the base effects in the official inflation series starting from June.

On November 2, the central bank hiked its forecast for end-2023 official inflation to 65% from the 58% given in the July inflation report. Also, the upper boundary was moved up from 62% to 68%.

Moreover, the central bank currently anticipates that official inflation may peak in the 75-80% range in May this year, up from the 70% projection it gave last July.

The authority sees official inflation at 36% at end-2024.

On February 8, the central bank will release its next inflation report and updated inflation forecasts.

The global markets are still in a new year mood of positivity. Through February, the positivity may sustain.

Turkey’s five-year credit default swaps (CDS) remain below the 300-level, while the yield on the Turkish government’s 10-year eurobonds remains below the 8%-level.

The USD/TRY rate is, meanwhile, still heading north. On September 21, the pair once again broke through the horizontal barrier set at the 27.00-level. The latest record high, registered on January 3, is 29.9040.

Since December 15, the Turkish government has returned to its ‘five/10 kurus (Turkish cents, pronounced as kurush) devaluation per day policy’. As of January 3, the daily tranche was being dug at around the 29.80-level. The annual rise in the USD/TRY pair remains at 59%.

Following the local elections to be held in March, Turkey’s policy rate will be at its peak. Then, the course of the USD/TRY pair will be observed.

When the northward pull on the pair ends, the moment will be seen as signalling the beginning of portfolio inflows and the opening of the window for slowly building up lira papers.