Turkish Central Bank sees 'gradual and slow' recovery in 2017

The Central Bank expects economic activity to pick up gradually this year, while acknowledging that data for the first quarter suggests the recovery is not yet widespread, according to the minutes of its latest policy meeting published on March 23.

"Economic activity exhibited a gradual recovery in the last quarter and moderate growth is expected for 2016. Economic activity is projected to display a slow gradual rebound in 2017," said the Bank. 

"However, the course of capital flows in line with uncertainties regarding global economic policies, geopolitical developments, the subsided course of the labor market and the lingering volatility in exchange rates may stand out as factors limiting the pace of growth in 2017," it added. 

The Bank also said monetary policy would remain tight until the inflation outlook shows significant improvement. 

It also noted that cost push pressures and the volatility in food prices in recent months have led to a sharp increase in inflation. 

"The significant rise in inflation is expected to continue in the short term due to lagged pass-through and the base effect in unprocessed food prices," it added. 

It also said the gradual elimination of the effect of 2016 tax increases may help to bring down inflation.

The Central Bank took another unorthodox tightening step last week, hiking the cost of funds from its "late liquidity window" by 75 basis points while leaving conventional policy rates on hold.