Turkey Hikes Inflation Forecast to 12.1% as Weak Lira Bites

An exchange office worker counts Turkish lira banknotes in Istanbul on June 8, 2015. (AFP)
An exchange office worker counts Turkish lira banknotes in Istanbul on June 8, 2015. (AFP)
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Turkey Hikes Inflation Forecast to 12.1% as Weak Lira Bites

An exchange office worker counts Turkish lira banknotes in Istanbul on June 8, 2015. (AFP)
An exchange office worker counts Turkish lira banknotes in Istanbul on June 8, 2015. (AFP)

Turkey’s central bank raised its 2020 inflation forecast more than 3 percentage points to 12.1% on Wednesday, saying higher import costs due to a record-weak lira were the main factor driving its upward revision.

Governor Murat Uysal defended the bank’s decision to leave its policy rate unchanged at 10.25% last week and to raise its late liquidity window rate. It cited the global uncertainty caused by the COVID-19 pandemic as a reason to keep the main rate steady.

He also said it provided flexibility and was not a “lasting deviation” from the bank’s monetary policy structure.

As the lira hit a fresh record low of more than 8.25 to the dollar, he said the bank had no target value for the currency.

“We see it converging with macro-fundamentals in the medium term,” Uysal told a briefing of the bank’s quarterly inflation report.

Higher costs for imports, as well as rising food prices and credit growth, meant that an anticipated fall in inflation in the second half of the year had not materialized, he said.

“Despite our evaluation...inflation was higher than foreseen with credit growth,” Uysal said. “The outlook for the remainder of the year points to a high trend.”

‘V-shaped recovery’

Turkey’s economy had seen a V-shaped recovery from the slowdown caused by the COVID-19 pandemic, Uysal said, strengthening the prospects for positive economic growth in the full year after a first half slump caused by coronavirus outbreak.

That optimism contrasts with expectations that Turkey’s economy will shrink 3.4% this year, according to a Reuters poll last week, much bleaker than government forecasts.

Turkey has been seeking to create or expand currency swap agreements with other central banks, amid investor concerns over its depleted foreign reserves.

“There are some concrete developments in our swap talks, I can say we reached the final stages in some of them. We had determined countries with which we have high trade, there are concrete developments in a couple,” Uysal said.

The Turkish lira has weakened to a series of record lows in recent weeks, slumping 27% in value so far this year on concerns about both inflation and the slide in the country’s foreign reserves.

The lira’s losses accelerated after the central bank bucked expectations last week by leaving its policy rate unchanged.

The bank raised its late liquidity window rate to 14.75%, saying it would continue liquidity measures to tighten money supply. So-called backdoor measures to rein in credit have raised the average cost of funding to 12.87% from a low of 7.34% in July.

The lira has also been hit by geopolitical worries, notably strains in ties with the United States, a diplomatic row with France, a dispute between Turkey and Greece over maritime rights and the conflict in Nagorno-Karabakh.



World Bank: Earthquake Worsens Myanmar's Economic Decline

This photo taken on May 8, 2025 shows a worker walking past sacks of rice in a warehouse on the outskirts of Zalun township in Myanmar's Irrawaddy Delta region. (Photo by Sai Aung MAIN / AFP)
This photo taken on May 8, 2025 shows a worker walking past sacks of rice in a warehouse on the outskirts of Zalun township in Myanmar's Irrawaddy Delta region. (Photo by Sai Aung MAIN / AFP)
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World Bank: Earthquake Worsens Myanmar's Economic Decline

This photo taken on May 8, 2025 shows a worker walking past sacks of rice in a warehouse on the outskirts of Zalun township in Myanmar's Irrawaddy Delta region. (Photo by Sai Aung MAIN / AFP)
This photo taken on May 8, 2025 shows a worker walking past sacks of rice in a warehouse on the outskirts of Zalun township in Myanmar's Irrawaddy Delta region. (Photo by Sai Aung MAIN / AFP)

Myanmar's beleaguered economy is expected to contract by 2.5 percent in the 2025/26 fiscal year largely due to the devastating impact of a powerful earthquake in late March, the World Bank said in a report on Thursday.

The World Bank said direct damages to property and infrastructure from the 7.7 magnitude quake were estimated at $11 billion, or 14% of the nation's gross domestic product, estimating that economic output would be about $2 billion lower than it otherwise would have been because of the quake.

The quake affected more than 17 million people, with nine million severely impacted, the World Bank said. The death toll has topped 3,700, according to Myanmar's ruling junta.

"The earthquake caused significant loss of life and displacement, while exacerbating already difficult economic conditions, further testing the resilience of Myanmar's people," Melinda Good, Division Director for Thailand and Myanmar, said a statement.
"Recovery efforts are essential to help the most vulnerable populations."

A junta spokesman did not respond to a call from Reuters seeking comment on the report.

In December, the World Bank had projected Myanmar's economy would shrink 1% in the 2024/25 fiscal year that ended in March due to the severe flooding in the country.

Myanmar has been in turmoil since the military seized power in a coup in February 2021, sparking a civil war. There have been international efforts to stall the conflict, but rebels have accused the junta of breaching a ceasefire called to allow relief efforts to reach earthquake-affected areas.

The hardest-hit regions of Mandalay and Naypyidaw were expected to lose up to one-third of their production between April and September before a partial recovery in the second half of the fiscal year, the World Bank said.

The earthquake could increase the national poverty rate by 2.8 percentage points, pushing more households into poverty, the report stated. A survey before the quake estimated the poverty rate at 31% in 2024.

"Myanmar's compounding crises have put household coping mechanisms under severe stress," said Kim Edwards, Senior Economist and Program Leader for Thailand and Myanmar.