(Bloomberg) — Turkish inflation is expected to surge to a 19-year high in December, propelled by a slump in the lira and President Recep Tayyip Erdogan’s push for cheaper borrowing. 

The data for Monday’s report will show that consumer prices rose to an annual 27.36% in December, as compared with 21.31% in November. According to the Bloomberg Survey of 19 economists who provided the median estimate, this is equal to the average value.

Turkey’s central bank has slashed its benchmark interest rate by 500 basis points since September in a series of moves encouraged by Erdogan, who has attacked higher rates as a challenge for businesses and a brake on economic growth. The cuts have sent the lira into a tailspin that’s fueled consumer price rises. 

Erdogan’s December announcement that it would compensate holders of the Turkish lira if its currency fell to a particular level helped the lira recover some of its losses. Yet, it is 31% lower than the September 23rd date when the central bank began to reduce interest rates. With a decline of 43%, it is still the least performing emerging currency against the dollar. 

How Erdogan’s Plan to Halt the Lira’s Fall Is Meant to Work 

“We expect a broad-based surge in inflation in December due to the depreciation in the lira until the introduction of the new lira deposit scheme,” said Ibrahim Aksoy, Istanbul-based chief economist at HSBC Asset Management. “While the lira has recovered with the new lira deposit facility, the possible retail price declines will probably be limited due to the high costs incurred when the lira was weaker.”

Real yields fell further into negative territory after rate cuts. Consumer inflation increased in the fourth quarter. Though rising inflation has hurt Erdogan’s popularity ahead of the 2023 election, he’s insisted he will push on with a policy shift he said aims to boost manufacturing and exports and reduce the influence of international markets on Turkish monetary policy.  

The central bank expects inflation to follow a volatile course though it expects its looser monetary stance will see inflation resume its downward trend “once temporary effects disappear.” 

The bank repeatedly stated that the recent price rise was caused by transient factors, not lower interest rate. Turkey’s monthly inflation will begin to slow in January as the lira stabilizes and the government cracks down on unjustified price increased, Finance Minister Nureddin Nebati said on Wednesday in a televised interview.  

“A wide-ranging deterioration in price dynamics, higher trend inflation as well as an increase in the FX pass-through points to a more challenging inflation outlook in 2022” said Ehsan Khoman, head of emerging market research for Europe, Middle East and Africa at MUFG Bank in Dubai. “Our CPI estimates remain well-north of 20% until the fourth quarter of 2022.” 

Inflation report October was published by the central bank. The inflation rate for year ended in December rose to 18.4%. On Jan. 27, the next inflation report is scheduled to be released. Next rate-setting meeting of the central bank is scheduled for Jan. 20.

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