Turkey's Central Bank Maintains Its Inflation Forecast Despite Accepting It Isn't Valid

Turkey’s central bank said on Wednesday that inflation in 2008 would be nearly double its official target in the face of rising energy and food prices, and warned of higher interest rates. Durmus Yilmaz, central bank governor, said inflation for this year would probably come in at 9.3 per cent, compared with a target range of 4.1-6.9 per cent it set in December. He said the bank, which adopted official inflation-targeting as the basis of its monetary policy in 2006, would probably not meet its long range 4 per cent target for another two years.

Mr Yilmaz blamed the deteriorating inflation outlook on rising energy and food prices. He said the soaring cost of oil and gas could add five percentage points to inflation next year. Rising food prices are also beginning to worry the government, which announced earlier this month that it would abolish import duties on rice

The bank has already missed its inflation target for 2006 and 2007. In an interview with the Financial Times earlier this year, the governor admitted missing the target for two successive years was “a huge credibility problem for the central bank”.

He argued at a news conference on Wednesday that there would have been no point in changing the official target in mid-year.