Turkish consumer prices rose more than 10 percent in February compared with the same month last year, data showed on Friday, which may force the central bank to ignore political pressure and raise interest rates this month. Consumer prices rose 10.13 percent compared with the same month last year, the Turkish Statistics Institute said. From January they were up 0.81 percent, exceeding a forecast rise of 0.47 percent in a Reuters poll.
It is the first time in nearly five years that annual consumer price inflation has climbed into double digits.
The data briefly hit the lira, which has been weighed down by investor concerns over security problems, a slowing economy and political uncertainty ahead of an April referendum on plans to boost President Tayyip Erdogan's powers.
Economists said the performance of the lira (TRY) would dictate the central bank's monetary policy decision when it meets on March 16, a day after the US Federal Reserve, which is expected to raise interest rates.
"If TRY continues to sell off and the Fed delivers on the now widely expected rate hike in March, then Turkey's central bank will also need to tighten, in our view, by widening the interest rate corridor," said Nomura economist Inan Demir.
Pressure from the government to keep borrowing costs low to prioritise economic growth is unlikely to relent ahead of the referendum, however.
The central bank has taken unorthodox monetary tightening steps to tame price rises and defend the lira after sharp losses at the start of the year, but it has not raised its policy rate since last November.
Early on Friday, the bank took another slight tightening step, lowering the level of funding it provides on the Istanbul bourse at 9.25 percent to 17 billion lira from 22 billion a day earlier. As a result it was set to provide more funding at its late liquidity window at a rate of 11 percent.
A banker familiar with central bank policies said that as a result of the reduction, the average cost of funding would rise to 10.50 percent on Friday from 10.38 percent at the start of the week.
More decisive action may have to wait until the bank's rate-setters meet.
"Faster deterioration in inflation and currency weakness might trigger CBRT (central bank) action in the March (interest rate-setting meeting)," said QNB Finansbank chief economist Gokce Celik. The central bank next sets rates on March 16.
The lira, which lost 1 percent of its value against the dollar on Thursday, softened to 3.7460 after the inflation data, its weakest since February 8. It subsequently firmed back up to 3.7330, supported by the central bank tightening.
Consumer price inflation in February was driven by the health sector, with a rise of 2.17 percent, and transportation prices which rose 2.82 percent. Producer prices climbed 1.26 percent from the previous month and a hefty 15.36 percent from the same month last year, the data showed. In September annual producer price inflation had been below 2 percent.