Turkey’s inflation problem likely to get worse

We have been warning about the deep-rooted drivers of Turkish inflation for some time, and it now looks like energy prices will compound the problem by pushing the headline rate even further above the central bank’s target. In these circumstances, most central banks would hike interest rates. Political pressure means Turkey’s probably won’t, barring a currency sell-off. Even so, we expect that monetary conditions will stay tight, with market interest rates likely to hug the top of the Bank’s rate “corridor”.