ISTANBUL, April 30 (Reuters) - Turkey’s Central Bank lowered its inflation forecast for end-2020 to 7.4% from an earlier prediction of 8.2%, Governor Murat Uysal said on Thursday, opening the door to more rate cuts as the coronavirus pandemic slows economic activity.
Volatility in reserves was expected to happen in extraordinary circumstances such as now, he said, but was short term and was expected to ease.
The bank revised its oil price assumption sharply down to $32.6 per barrel from $60, which would have a significant impact on the energy-import dependent country. Food price inflation was forecast at 9.5%, down from 11% in the last quarterly report.
The bank sees inflation falling to 5.4% at the end of 2021, Uysal said, unchanged from the forecast in the previous report, and converging gradually to a target of 5%.
Inflation currently stands at 11.86%. A Reuters poll showed economists expect it to tall to 10.88% in April.
Uysal said the bank was holding talks on swaps lines with several central banks, but declined to give details.
The central bank has aggressively burned through its foreign reserves to fund, via swaps, unorthodox efforts by Turkey's state banks to prop up the lira.
Based on reserves data and the calculations of traders, the state banks have sold at least $32 billion in dollars this year, already matching the value of last year’s market interventions.
The result has been a dramatic fall in the central bank’s net FX reserves to below $25 billion as of mid-April, from more than $40 billion at the beginning of 2020. Excluding the swaps with state banks, some economists say the net reserves may have already fallen into negative territory.
Reporting by Ali Kucukgocmen, Ezgi Erkoyun and Jonathan Spicer; Writing by Daren Butler; Editing by Dominic Evans