Goldman Sachs post-election inflation and TL analysis: 'It may rise in May'

US investment bank Goldman Sachs has published its latest report on Turkey ahead of the local elections to be held on Sunday, March 31.

The report stated, "Regardless of the election results, we expect both monetary and fiscal policy to continue, and for the pressure on reserves as well as the TL to subside. Since budget revenues have reached their long-term average, we do not expect tax increases similar to last year following the elections, and we believe that spending-side pressures will also decrease."

"IT WILL PEAK IN MAY"

The report, which also included a year-end inflation forecast, noted, "We estimate that inflation will peak in May and then begin a sharp decline to 33 percent by the end of the year, supported by favorable base effects."

Regarding foreign currency demand, the report stated, "There is increased demand for foreign currency due to the Turkish public's belief that the TL will lose significant value after the elections; however, we believe that the Central Bank of the Republic of Turkey's (TCMB) 500 basis point interest rate hike last week sent a strong signal that the probability of such a devaluation is low."

The report, which predicts that inflation will remain high during this period due to rising food and service inflation as Ramadan coincides with March this year, stated, "Due to the negative base effect, we estimate that annual inflation will rise to 68.5 percent in March."

The report pointed out that while core goods inflation is rising on a monthly basis due to the weakness in the exchange rate, a slowdown is expected in other Consumer Price Index sub-items. It was also noted that there is uncertainty regarding the forecasts due to the difficulty of calculating the total impact of wage increases and the month of Ramadan on inflation in the current inflationary environment.