Turkey Central Bank raises inflation forecasts

Turkey's Central Bank raised its inflation forecasts for this year and signaled it could hike rates once the U.S. Federal Reserve begins to tighten, in what could be a boost for the long-suffering Turkish currency.

In its quarterly report on inflation, the bank forecasted an inflation mid-point of 7.9 percent at the end of 2015, up from 6.9 percent in its previous report.

For the end of 2016, it forecasted the mid-point at 6.5 percent, up from 5.5 percent in its previous report.

In a news conference following the release of the report, Governor Erdem Ba?ç? said would not be "totally incorrect" to say Turkey may raise interest rates if the U.S. Federal Reserve does, adding that Turkey could move in that direction depending on the inflation outlook, as quoted by Reuters. 

"In the third quarter of 2015, annual consumer inflation posted a quarterly increase of around 0.75 points compared with the previous quarter and rose to 7.95 percent, remaining above projections of the July Inflation report. Food prices and exchange rate developments are the main drivers of this rise in annual inflation," said Ba?ç?.  

Saying that the Central Bank's upward revision in inflation forecasts is of great importance, Capital Economics analyst William Jackson told Reuters: "When we consider how heavy a pressure the Central Bank faced in any rate hike move in the past, it will be very convenient for the bank to mention the triggering effect of the Fed's moves for a possible rate hike of its own."

Ba?ç? said the inflation rates will maintain its current levels for a while and then start to decline.           

Foreign exchange movements and food prices have influenced Turkey's annual inflation, although the foreign exchange impact...