Turkey's central bank responded to a lira slide by raising its year-end inflation forecast on Thursday to 12.2% from 9.4%, and its new governor said tight policy would be maintained until price pressures decline.
Presenting a quarterly inflation report for the first time since he was appointed last month, Governor Sahap Kavcioglu said the policy rate, now at 19%, would be set above inflation, which topped 16% last month and is expected to rise more.
Kavcioglu sought in the presentation to convince economists that he would be as decisive as his predecessor, Naci Agbal, a respected policy hawk, in bringing down inflation to a 5% target over the next three years.
Yet his shock appointment as bank chief last month, which initially sent the lira down as much as 15%, has raised inflation via imports and piled pressure on the bank to keep rates high even though Kavcioglu has in the past urged cuts.
"We have given clear guidance ... saying that the policy rate will be above inflation and we will continue that," the governor said in a mostly prepared presentation. "We will continue the tight policy stance,” Reuters quoted him as saying.
Kavcioglu, a former banker and professor, predicted that inflation will peak in April before easing.
"The policy rate will remain above realized and expected inflation until inflation converges to the target," he said.
After firming slightly, Turkey's currency weakened nearly 1% to 8.25 by 1315 GMT. It is one of the worst performers in emerging markets this year, down 10%.
Serkan Gonencler, an economist at Gedik Yatirim, called the central bank's year-end forecast "optimistic" and below market forecasts, adding it did not fully acknowledge how much the lira depreciation has raised import prices.
Inflation is expected to top 17% this month and drop to only 14% by year end, according to a Reuters poll this week. Some analysts, including at Goldman Sachs, expect it to reach as high at 18%.