Turkey's lira slumped in August, falling as much as 47 percent against the US dollar since the start of the year on investor concerns about the central bank's independence and a deterioration in US-Turkish ties. It has since recovered some ground after a hefty 6.25 percentage point rate hike in September and an improvement in relations with the United States. It currently trades at 5.2740 to the dollar.
"Our analysis shows a month-on-month fall of 0.1 percent, and the annual inflation to fall to 20.7 percent on the back of a stronger lira and lower oil prices," Erkin Isik, chief economist at lender QNB Finansbank, told Reuters. Isik said a 10 percent reduction in electricity and natural gas prices, coming into effect in January, alongside the fall in oil prices, would also help rein in inflation in the new year.
Economic indicators are improving after the currency meltdown, with the latest economic confidence index rising to 75.2 percent in December, the second monthly gain since it hit a 10-year low in October. The government introduced tax cuts for some consumer products including vehicles, furniture and white goods and encouraged shops to offer at least 10 percent discounts until the end of the year on goods affecting inflation.