Inflation expectations in Türkiye continue to ease, a survey by the central bank showed on Monday, as growth in price gains starts to ease, with a top economy official seeing the disinflation becoming more pronounced in the coming months.
The inflation is expected to fall to 42.95% by the end of this year, according to the Central Bank of the Republic of Türkiye's (CBRT) survey of market participants. The previous survey estimate stood at 43.52%.
The expectations for inflation 12 months from now fell to 30.02% from 31.79%.
Inflation is seen dropping to 19.32% two years from now, the CBRT survey showed, down from 20.33%.
"Inflation expectations are converging toward our target," Treasury and Finance Minister Mehmet Şimşek said.
"The year-end inflation expectation has fallen to 43%, the 12-month expectation to 30%, and the 24-month expectation to 19.3%," Şimşek wrote on social media platform X.
"The 12-month and 24-month inflation expectations have consistently declined since we announced the MPT (medium-term program)."
Backed by President Recep Tayyip Erdoğan and spearheaded by Şimşek, Türkiye has been implementing a tight monetary and fiscal policy since last year to tackle soaring inflation.
In June, the country's annual inflation rate began what is expected to be a sustained fall, dipping more than expected to 71.6% from 75.45% in May.
Since June 2023, the central bank's new leadership has hiked interest rates by 4,150 basis points from 8.5% to 50% to cool inflation. It raised the one-week repo rate by 500 basis points in March following a February pause, citing a deterioration in the inflation outlook.
Higher rates lead to costlier mortgages, auto loans, credit cards and other forms of consumer and business borrowing.
Erdoğan has repeatedly backed the new economic program, unveiled last September, while the central bank says rates will remain high. Since the policy reversal, rating agencies have upgraded Turkish assets and many foreign investors have returned.
Şimşek said improving expectations, despite rising actual annual inflation, reflect confidence in the government's disinflationary policies.
"Although we expect an increase in monthly inflation in July due to temporary effects, we anticipate a significant decline in annual inflation," he noted.
"The disinflation process will become more evident in the coming months."
The CBRT survey estimates that the Turkish lira would trade at 37.37 against the U.S. dollar at the end of the year, compared to 37.75 in the previous survey.
The currency has held mostly steady since March, helping underpin the expected inflation relief.
It traded at just above 33 to the dollar as of 1:03 p.m. local time in Istanbul.
Expectations for the exchange rate 12 months from now rose to 41.52 from 41.41, the survey showed.
CBRT to hold rates steady
The central bank is expected to leave its benchmark policy rate unchanged at its Monetary Policy Committee (MPC) meeting on Tuesday.
Such a stance is expected to be preserved until at least next quarter as the bank continues its battle to bring inflation levels under control, according to the median in a Reuters poll of 26 economists.
The policy rate is expected to drop by 500 basis points to 45% by the end of 2024, the July 15-19 poll suggested.
However, no significant easing was expected until next year.
The central bank was forecast to have reduced rates by 2,250 basis points to 27.50% by the end of 2025, almost half what it is now.
The CBRT has said it will maintain its tight monetary policy stance until a permanent decline in inflation is achieved. In June, the central bank reiterated that disinflation would take hold in the second half of the year.
"We maintain our forecast of no change in policy rates until January 2025. Based on our recent investor trip to Türkiye, it seems local banks and independent economists broadly expect the first rate cut to come in Q4 24, more specifically in November or October," Barclays said in a research note.
"If inflation falls faster than we expect, the central bank might consider easing earlier," it added.
In June, the CBRT said it expected inflation to fall to 38% by the end of the year.
According to the Reuters poll, inflation is expected to decrease to 43.7% by the end of 2024. The survey predicts inflation will drop to 24.7% by the end of 2025.
The CBRT survey showed that expectations for gross domestic product (GDP) growth in 2024 rose to 3.4% from 3.3%. Estimates for 2025 expansion dropped to 3.6% from 3.7%.
According to the Reuters poll, growth is expected to average 3.2% this year and next.
Türkiye's medium-term program predicts growth of 4% this year and 4.5% next year.
The economy grew 4.5% in 2023.
It expanded by 5.7% in the first quarter, one of the world's highest growth rates at the start of the year, driven by robust domestic demand despite tight monetary policy.