Macroeconomic Forecast Turkey

Turkish inflation surged to 10.1% y-o-y in February, raising concerns that the Central Bank of the Republic of Turkey (CBRT) may hike rates more aggressively than originally expected. Indeed, while holding the policy rate at 6.50% at its March monetary policy committee meeting, the CBRT did issue its most hawkish press statement in over a year. We now highlight upside risks to our forecast for 200bps in hikes by end-2010. We stress though, that much of the spike in consumer price growth in February was caused by base effects and regulated price increases, as opposed to a fundamental improvement in demand. Indeed, core inflation remains below 5.0%. As such, we maintain our end-2010 inflation forecast of 6.50% y-o-y.

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