Turkish lira and stocks stumble as inflation soars

Dow Jones – Turkey's annual inflation rate jumped to a nine-year high in October, the state statistics agency said on Friday, fuelled by soaring core prices. This comes after a warning from the country's central bank earlier this week of a potential rise in inflation.

The annual consumer-price index rose to 11.9% in October--the highest reading since October 2008--from 11.2% in September, according to the official data. This exceeded a forecast of 11.6% in a survey by The Wall Street Journal, and more than doubled the central bank's target of 5%.

Core inflation indicators, excluding food and beverages, tobacco, energy and gold prices, jumped to 11.8% in October from 11% in September, rising at the fastest pace in more than 13 years.

Turkish lira weakened more than 1.5% against the dollar to trade at TRY3.8522 in the afternoon. Meanwhile, Turkey's BIST-100 index was down 1.6%.

"Inflation in Turkey continues to push relentlessly higher," Cristian Maggio, head of emerging markets strategy at TD Securities, said. "The current situation leads us to a very simple and inevitable conclusion, monetary policy is not tight enough."

The governor of Turkey's central bank, Murat Cetinkaya, said on Wednesday that the bank had raised the year-end inflation forecast to 9.8% from 8.7%. Policymakers lifted their inflation estimate for next year to 7% from 6.4%, citing the recent depreciation of the Turkish currency.

Turkish lira slumped more than 8% against the dollar since the start of this year.

Mr. Cetinkaya said that the country's inflation rate may surprise upwardly in October and November, but will start falling in December.

He underlined that the tight stance in monetary policy will be maintained until the inflation outlook displays a significant improvement and becomes consistent with the targets. He said that the central bank strengthened the cautiousness of its stance on monetary policy given the rise in commodity prices and volatility in exchange rates.

Last month, Turkey's central bank kept all of its interest rates steady. The central bank's next monetary policy meeting is on December 14.

"CBRT [Central Bank of Turkey] strategy seems pretty clear--to hold the line on rates, not further tightening, and try and ride out near term rising inflation," said Tim Ash of BlueBay Asset Management. "They hope to hold out until base period effects bring some relief."