Turkish inflation slows by skyrocketing caused by the crisis

According to official data released on Monday, Turkey's inflation rate fell slightly in May, making the market fear that progress in controlling price growth will not lead the central bank to lower interest rates. .

Consumer prices rose 18.7% last month from the previous year, up from 19.5% in April.

The lira was put under pressure after the publication of consumer price data better than expected, investors fearing that the decline in price growth would lead to a premature reduction in interest rates of the country's central bank . The Turkish currency was down 0.7% against the dollar at 9:15 BST.

Turkey had to cope with soaring prices as a result of the currency crisis that occurred last summer and led to a 30% decline against the dollar. The annual inflation rate climbed to more than 25% in the aftermath of the crisis.

Stubbornly high inflation – combined with a volatile currency – has forced the central bank to keep its key rate at the high rate of 24% since September.

The governor of the central bank Murat Cetinkaya promised earlier this year to maintain a restrictive monetary policy until a "convincing" fall in inflation is observed.

Monday's data showed that, although the overall inflation rate fell in May, Turkey has always faced strong annual price increases on various goods and services. Food price inflation, although lower than the previous month, was still 28.4% in May, while the cost of furniture and household equipment was up 24.5% over the previous month. a year.

Nevertheless, some investors are concerned that the data, which coincide with a marked slowdown in economic growth, may lead to pressure on the central bank to lower rates sooner than it considers prudent. Recep Tayyip Erdogan, the Turkish president, is an opponent of high interest rates and is generally seen as seeking to interfere in the bank's decisions.

The next meeting of the central bank's monetary policy committee will take place on 12 June.

Tim Ash, an emerging markets strategist at BlueBay Asset Management, said the central bank would make a "big bet" on rate cuts next week, barely a fortnight before the resumption of capital elections in Istanbul.

"To cut too early will only bring back the pressure to read it, which would serve no purpose. [Mr Erdogan’s Justice and Development party] before these elections in Istanbul, "he wrote in a note addressed to customers.

Although the currency rallied last week after suggestions that Turkey would be willing to avoid an imminent crisis with the United States for their plans to acquire a Russian air defense system, badysts said warn that he remains vulnerable to further depreciation.

A further decline in the currency could not only reignite inflation, but also put pressure on the business sector in Turkey, which is indebted in foreign currency.