Turkey's inflation jumps over 60% in March

Turkish inflation soared to a fresh two-decade high in March, leaving the lira increasingly vulnerable by depriving the currency of a buffer against market selloffs.

Annual producer inflation was in triple digits for a second month and the core index of prices, which excludes food and energy items, increased more than forecast to over 48% from a year earlier.

A three-month policy pause by the central bank means Turkey’s interest rates are the world’s lowest when adjusted for prices as the cost of everything from food to energy surges.

Turkey’s ultra-loose monetary policy is out of sync with the rising hawkishness of many of the world’s central banks at a time its economy is bracing for commodity shocks unleashed by Russia’s invasion of Ukraine. 

With Turkey’s real rates at minus 47%, the lira has already come under pressure, staging the second worst performance after Russian ruble in emerging markets against the dollar in March.

The central bank’s present policies became more questionable in the current environment, with upside risks still on the table considering the pace of cost inflation, said Onur Ilgen, the head of the treasury at MUFG Bank Turkey in Istanbul.

Rate hikes aren’t on the agenda because of President Recep Tayyip Erdogan’s goal of using a cheaper lira to turn Turkey into a manufacturing power. 

Declines in the currency, which has lost over 9% so far this year, are meanwhile feeding into inflation by making imports more expensive.