Türkiye Inflation Hits 75% in Expected Peak Before Relief

A view of produce for sale at a store in Istanbul, Türkiye, May 29, 2023. REUTERS/Hannah McKay/File Photo Purchase Licensing Rights
A view of produce for sale at a store in Istanbul, Türkiye, May 29, 2023. REUTERS/Hannah McKay/File Photo Purchase Licensing Rights
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Türkiye Inflation Hits 75% in Expected Peak Before Relief

A view of produce for sale at a store in Istanbul, Türkiye, May 29, 2023. REUTERS/Hannah McKay/File Photo Purchase Licensing Rights
A view of produce for sale at a store in Istanbul, Türkiye, May 29, 2023. REUTERS/Hannah McKay/File Photo Purchase Licensing Rights

Turkish annual consumer price inflation reached 75.45% in May, a bit above expectations, official data showed on Monday, in what is expected to be the high watermark before a series of rate hikes and relative lira stability bring relief.

The consumer price index rise was driven by strong advances in education, housing and restaurant prices last month, Turkish Statistical Institute data showed.

Monthly inflation is also expected to ease after May, when it was 3.37%, compared with 3.18% in April, the data showed. Annual inflation in April was 69.80%, Reuters reported.

Finance Minister Mehmet Simsek said "the worst is over" and relief will begin this month. "The transition period in the fight against inflation is completed, we are entering the disinflation process," he said on X.

In a Reuters poll, annual inflation had been forecast to peak at 74.8% in May, its highest level since November 2022, before dropping to 42.6% by the end of 2024. Forecasts for month-on-month price rises ranged between 2.7% and 3.3%.

The central bank has raised its policy rate (TRINT=ECI), opens new tab by 4,150 basis points since June last year and vowed to tighten more if there is "a significant and persistent deterioration" in the outlook.

It last raised rates in March, by 500 basis points to 50%, citing a worsening inflation outlook, and has since held steady.

The tightening marked a dramatic reversal of years of monetary stimulus that was championed by President Tayyip Erdogan to boost growth, but which sent inflation soaring and sparked a years-long cost-of-living crisis for Turks.

As a result the lira , steady on Monday, has skidded to 32.25 to the dollar from 5.7 five years ago. It is down more than 8% this year but held mostly steady since March, helping underpin the expected inflation relief.

"We're confident that inflation has now reached a peak but, with today's release containing a few unpleasant surprises, the pace of disinflation in the second half of the year is looking a bit more uncertain," Capital Economics said in a nod to the higher-than-expected print.

The domestic producer price index was up 1.96% month-on-month in May for an annual rise of 57.68%, the data showed.

The policy reversal has drawn foreign investor interest and helped boost the central bank's foreign reserves, which are at the highest level since December on a net basis.

International investors are ramping up exposure to Turkish local bonds and credit default swaps. JPMorgan said it had moved its allocation to Turkish domestic government bonds to "overweight", citing increasing confidence in the policy.

Last month, the central bank nudged up its year-end inflation forecast to 38% and said it would "do whatever it takes" to avoid any longer-term deterioration in the outlook.



US Treasury Targets Russia's Gazprombank with New Sanctions

FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo
FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo
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US Treasury Targets Russia's Gazprombank with New Sanctions

FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo
FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the US Treasury building in Washington, US, January 20, 2023. REUTERS/Kevin Lamarque/File Photo

The United States imposed new sanctions on Russia's Gazprombank on Thursday, the Treasury Department said, as President Joe Biden steps up actions to punish Moscow for its invasion of Ukraine before he leaves office in January.
The move, which wields the department's most powerful sanctions tool, effectively kicks Gazprombank out of the US banking system, bans its trade with Americans and freezes its US assets, Reuters reported.
Gazprombank is one of Russia's largest banks and is partially owned by Kremlin-owned gas company Gazprom. Since Russia's invasion in February 2022, Ukraine has been urging the US to impose more sanctions on the bank, which receives payments for natural gas from Gazprom's customers in Europe.
The fresh sanctions come days after the Biden administration allowed Kyiv to use US ATACMS missiles to strike Russian territory. On Tuesday, Ukraine fired the weapons, the longest range missiles Washington has supplied for such attacks on Russia, on the war's 1,000th day.
The Treasury also imposed sanctions on 50 small-to-medium Russian banks to curtail the country's connections to the international financial system and prevent it from abusing it to pay for technology and equipment needed for the war. It warned that foreign financial institutions that maintain correspondent relationships with the targeted banks "entails significant sanctions risk."
"This sweeping action will make it harder for the Kremlin to evade US sanctions and fund and equip its military," Treasury Secretary Janet Yellen said. "We will continue to take decisive steps against any financial channels Russia uses to support its illegal and unprovoked war in Ukraine."
Gazprombank said Washington's latest move would not affect its operations. The Russian embassy in Washington did not respond to requests for comment.
Along with the sanctions, Treasury also issued two new general licenses authorizing US entities to wind down transactions involving Gazprombank, among other financial institutions, and to take steps to divest from debt or equity issued by Gazprombank.
Gazprombank is a conduit for Russia to purchase military materiel in its war against Ukraine, the Treasury said. The Russian government also uses the bank to pay its soldiers, including for combat bonuses, and to compensate the families of its soldiers killed in the war.
The administration believes the new sanctions improve Ukraine's position on the battlefield and ability to achieve a just peace, a source familiar with the matter said.
COLLATERAL IMPACT
While Gazprombank has been on the administration's radar for years, it has been seen as a last resort because of its focus on energy and the desire to avoid collateral impact on Europe, a Washington-based trade lawyer said.
"I think that the current administration is trying to put as much pressure and add as many sanctions as possible prior to January 20th to make it harder for the next administration to unwind," said the lawyer, Douglas Jacobson.
Officials in Slovakia and Hungary said they were studying the impacts of the new US sanctions.
Trump would have the power to remove the sanctions, which were imposed under an executive order by Biden, if he wants to take a different stance, Jacobson said.
After Russia's invasion in 2022, the Treasury placed debt and equity restrictions on 13 Russian firms, including Gazprombank, Sberbank and the Russian Agricultural Bank.
The US Treasury has also worked to provide Ukraine with funds from windfall proceeds of frozen Russian assets.