Turkish Lira Declines After Central Bank Upgrades Inflation Forecast

The Turkish lira fell today after Turkey’s central bank revised its inflation forecast up. The currency declined even as the bank signaled about possibility of an interest rate hike.
The Central Bank of the Republic of Turkey released the Summary of the Monetary Policy Committee Meeting for the last week’s policy meeting. After the gathering, the bank surprised markets, refraining from increasing borrowing costs to tame accelerating inflation.
In the today’s notes, the central bank revealed an upgraded inflation forecast:

Accordingly, year-end consumer inflation forecasts for 2018 and 2019 were revised upwards by 5 points and 2.8 points, respectively compared to the April forecast.

As the result, the inflation projections were following:

Accordingly, inflation is projected to be 13.4 percent at the end of 2018 and then fall to 9.3 percent at the end of 2019.

Policy makers signaled that they are going to maintain tight monetary policy and are ready to tighten it further if necessary:

Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement. Inflation expectations, pricing behavior, lagged impact of recent monetary policy decisions, contribution of fiscal policy to rebalancing process, and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.

USD/TRY rose from 4.8804 to 4.9089 as of 16:33 GMT today. EUR/TRY gained from 5.7135 to 5.7476, touching the high of 5.7724.

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