ISTANBUL (Reuters) -Turkish annual inflation dipped a bit more than expected to 35.41% in May, official data showed on Tuesday, less than half the level that it reached a year earlier as tight monetary policy continued to slowly cool price expectations.
Month-on-month, consumer price inflation was 1.53%, the Turkish Statistical Institute said, also below forecasts. In April, inflation stood at 3.0% on a monthly basis and 37.86% annually.
The better-than-expected print boosted bank stocks on hopes that a return to rate cuts could drive the sector.
Turkey’s main banking index rose 5.3%, while the broader stock index was up 2.5%.
In a Reuters poll, the monthly inflation rate was expected to be 2.0% in May, with the annual rate seen at 36.1%.
Agricultural frost is expected to reduce fruit output by 25%.
But it was fully reflected in the May data, so on a monthly basis the food group saw the first negative inflation since 2019, driven by unprocessed foods, economists said.
Annual increases were led by education prices which were up 71.67% on the year, while housing prices climbed 67.43%.
Food and non-alcoholic drinks prices rose 32.87%.
Inflation is seen at around 30% by year end, the poll showed, above a central bank forecast of 24%. Economists have revised up year-end inflation forecasts since March despite the central bank’s recent tightening steps.
Turkish assets fell in March and the lira touched a record low against the U.S.
dollar after Istanbul Mayor Ekrem Imamoglu – Erdogan’s chief political rival – was jailed pending trial over graft charges that he denies.
The central bank responded by selling some $57 billion in foreign currency and took steps to tighten policy by 700 basis points.
In recent weeks it reversed and resumed buying large amounts of forex.
Although the policy rate currently stands at 46%, the central bank kept the overnight rate at around 49%. The market is closely monitoring the level of overnight rates for further signals on the policy path ahead.
“Real returns are in a better position now compared to when the central bank first started to cut interest rates back in December…since inflation came better than expected, interest rate cut expectations in June meeting will increase,” said Erol Gurcan, chief economist at Yatirim Finansman.
“We can say that there may be a rate cut at the meeting on June 19 if the overnight interest rates converge to the current policy rate after the Eid holiday.
Even if there is no direct easing in June, we expect verbal guidance from the central bank on interest rate cuts,” Gurcan added.
The domestic producer price index rose 2.48% month-on-month in May for an annual rise of 23.13%, the data showed.
(Reporting by Canan Sevgili, Daren Butler and Ezgi Erkoyun; Editing by Jonathan Spicer)
