Turkey may be on the verge of hyperinflation

Turkey’s economy may be on the brink of hyperinflation after the authorities ignored inflation of almost 20 percent and cut interest rates for a third successive month.

Annual consumer price inflation is expected to accelerate to 20.7 percent in November, according to a Reuters poll, the highest rate since November 2018, when a currency crisis had swept through Turkey’s financial markets.

The Turkish lira has slumped to successive record lows over the past few weeks in a repeat of the turmoil three years ago. Last Tuesday, it dived by as much as 15 percent against the dollar to an all-time low of 13.52 per dollar. The lira had traded at 3.78 at the start of 2018 and 7.44 in January.

Turkish President Recep Tayyip Erdoğan has been ordering the central bank to cut borrowing costs - the benchmark rate now stands at 15 percent - and Turkey could be heading towards hyperinflation should he refuse to abandon that approach, analysts warned, the Financial Times reported. Erdoğan has sacked three central bank governors in just over two years, along with a majority of members of the bank’s rate-setting committee.

“Headline CPI will likely close in on 30 percent over the coming months,” said Pheonix Kalen, analyst at French bank Societe Generale, according to the FT.

“Headline CPI peaking at 27 percent over the near term would be an optimistic scenario,” he said.

The Turkish Statistical Institute will publish November inflation figures on Friday. The central bank next meets on interest rates on Dec. 16.

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