(Bloomberg) -- Turkish inflation is expected to surge to a 19-year high in December, propelled by a slump in the lira and President Recep Tayyip Erdogan’s push for cheaper borrowing. 

Data due Monday will show consumer prices rose for a seventh straight month to an annual 27.36%, compared to 21.31% in November, according to the median estimate in a Bloomberg survey of 19 economists.

Turkey’s central bank has slashed its benchmark interest rate by 500 basis points since September in a series of moves encouraged by Erdogan, who has attacked higher rates as a challenge for businesses and a brake on economic growth. The cuts have sent the lira into a tailspin that’s fueled consumer price rises. 

The lira recovered some of its losses in December after Erdogan introduced a mechanism that promises to compensate holders of the lira when the currency weakens to a certain level. However, the currency remains about 31% weaker than it was on Sept. 23, when the central bank started cutting interest rates. It remains the worst performer among emerging market currencies against the dollar this year, with a slump of around 43%. 

How Erdogan’s Plan to Halt the Lira’s Fall Is Meant to Work 

“We expect a broad-based surge in inflation in December due to the depreciation in the lira until the introduction of the new lira deposit scheme,” said Ibrahim Aksoy, Istanbul-based chief economist at HSBC Asset Management. “While the lira has recovered with the new lira deposit facility, the possible retail price declines will probably be limited due to the high costs incurred when the lira was weaker.”

The recent rate reductions sent real yields deeper into negative territory as consumer inflation climbed in the fourth quarter. Though rising inflation has hurt Erdogan’s popularity ahead of the 2023 election, he’s insisted he will push on with a policy shift he said aims to boost manufacturing and exports and reduce the influence of international markets on Turkish monetary policy.  

The central bank expects inflation to follow a volatile course though it expects its looser monetary stance will see inflation resume its downward trend “once temporary effects disappear.” 

The bank has repeatedly said that transient factors rather than lower interest rates are behind the latest surge in prices. Turkey’s monthly inflation will begin to slow in January as the lira stabilizes and the government cracks down on unjustified price increased, Finance Minister Nureddin Nebati said on Wednesday in a televised interview.  

“A wide-ranging deterioration in price dynamics, higher trend inflation as well as an increase in the FX pass-through points to a more challenging inflation outlook in 2022” said Ehsan Khoman, head of emerging market research for Europe, Middle East and Africa at MUFG Bank in Dubai. “Our CPI estimates remain well-north of 20% until the fourth quarter of 2022.” 

The central bank raised its year-end inflation estimate to 18.4% from 14.1% in inflation report published in October. The next inflation report will be published on Jan. 27. The central bank will hold its next rate-setting meeting on Jan. 20.

©2022 Bloomberg L.P.