UPDATE 3-Turkish inflation reached 25 percent in October, the highest in 15 years


* Inflation remains in October at a 15-year level

* The policy rate of the central bank is 24 percent lower than the inflation rate

* Turkey recorded a negative growth in this quarter and the following (adds another analytical comment, Moody's note)

Ali Ali Kucukgocmen and Ezgi Erkoyun

(STA) – Turkey's annual inflation rose to 25 percent in October, according to official data, on Monday, the highest value in the last fifteen years, highlighting the permanent impact of the currency crisis as the wider economy loses its speed.

The data on the Turkish Statistical Institute rose by 2.67 percent year on year, higher than the forecast for 2.0 percent on the Reuters survey.

After the lira, which also caused inflation, the government reduced its growth forecasts, while economists believed that Turkey would record a negative GDP growth in the quarter and the second quarter, thus deterring any central bank from higher inflation.

"I do not think that the (central bank) should raise the policy rates again if the inflation data continues to be disappointing, as this will be deeper," said Timothy Ash, strategic head of Blue Bay Asset Management.

"They will anticipate that deflation and recession will overtake inflation over time, but they need time."

The lira weakened to 5.4390 against the dollar to 0951 GMT from 5.43 in advance. The currency has recently recovered from some sales losses caused by concerns over the ability of the central bank to respond adequately to rising inflation and worsening the ties with Washington. This is still just under 30 percent compared to the US dollar this year.

In October, producer prices rose by 0.91 percent, representing 45.01 percent annual growth. Basic inflation rose 24.34 per year.

Inflation in October caused a 12.74% monthly rise in clothing and footwear prices and a 4.15% rise in house prices, data showed.


Last month, the central bank of Turkey remained unchanged with reference interest rates, as in September it watched the impact of the mammoth march and relieved tension with the United States, which contributed to the lira. The bank's main interest rate, one weekly repo rate, currently stands at 24 percent.

In October, rising inflation was the actual interest rates of the central bank – the levels were taken into account when taking into account price increases – pushed into the negative area.

In October, Finance Minister Berat Albayrak announced a "full fight" against inflation, which calls on all companies to offer a 10% discount on items that affect inflation by the end of the year.

Last week, it announced a reduction in consumer taxes on furniture, white goods and motor vehicles, which, according to economists, will be a three-month inflation of around 1 percentage point.

Tax cuts will temporarily increase spending, but it is credit-negative and the risk of re-leveraging the lira, said Moody's rating agency.

"These are the more short-term measures they are introducing, and I think that it should be more permanent to reduce inflation, and that's why the central bank needs to take on a more pro-active role," said Per Hammarlund, the main strategic strategist for emerging markets in the SEB.

They write: But Kucukgocmen and Ezgi Erkoyun; Editing Darren
Butler and Raissa Kasolowsky

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