Very high inflation may be the new normal in Turkey

Significance

As state-owned banks apparently intervene to support the lira, the Treasury and Finance Ministry has proposed issuing domestic bonds with yields linked to the revenues of state enterprises, tighter limits on consumer credit and higher reserve requirements on bank lending to companies. The package at least suggests more government attention being paid to inflation.

Impacts

• Hardship may increase among groups unable to increase their incomes in line with rising prices.
• Lack of savings will tend to prolong the current account deficit despite lira weakness, as high inflation helps deter capital inflows.
• Turkey will be seen as unstable, badly managed and vulnerable to a sudden balance of payments, financial or fiscal crisis.