Turkish central bank raises inflation forecast sharply

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Turkey’s central bank raised its year-end inflation forecast of 5.3 percent to 6.2 percent in a sharp adjustment on Tuesday

“We have updated our 2013 year-end inflation estimate 0.9 points up considering the exchange rate and developments in oil prices,” the bank’s governor Erdem Basci said in remarks broadcast live.

The central bank is fighting hard to bolster the weakening Turkish currency, the lira, to fight inflation.

A fall in the value of local money pushes up the cost of imports and can be a factor of inflation.

Last week, the bank raised its overnight rate by 0.75 percentage points to 7.25 percent, as part of efforts to prop up its currency from a flight of foreign capital.

The move came on the heels of intervention on the foreign exchange market to shore up the lira.

Turkey has achieved strong economic growth in the last decade after severe financial crisis, exceeding 8.0 percent in 2010 and 2011.

But it is also extremely vulnerable to rapid flows of foreign capital and has been hit hard by talk of central banks in the U.S. and elsewhere winding up stimulus policies that have encouraged investors to Turkey’s door.

The government was predicting far slower growth of 4.0 percent this year.

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