Turkish Central Bank Governor Resolute in Efforts to Combat Inflation

Turkey’s central bank is committed to combating soaring prices and will persist with its tight policy stance, Governor Fatih Karahan told Reuters. A series of aggressive rate hikes are beginning to reduce the high inflation.

“We will maintain tightness and wait for data and expectations to align with our disinflation path. We believe there is still some way to go in this regard,” Karahan said in an interview on Wednesday.

“We want to see a significant and sustained decline in the underlying trend of monthly inflation. We are extremely determined to bring down inflation,” Karahan added, marking his first media interview since becoming central bank chief in February.

His assertive stance follows data showing Turkey’s annual inflation rate unexpectedly dropped to 71.6% in June, with a marked cooling in monthly inflation as well.

The central bank has held its policy steady, pledging to act if the inflation outlook worsens, since raising rates by 500 basis points to 50% in March.

Since June 2023, the bank has tightened by 4,150 basis points, reversing a long-standing low-rates policy promoted by President Tayyip Erdogan to stimulate economic growth.

The lira weakened slightly to 32.5675 against the dollar, while Istanbul’s main share index was up 0.5% on Thursday.

Annual inflation has decreased from 75.45% in May, the highest since November 2022. Last month’s decline led to some expectations that the central bank might soon ease its policy, with Goldman Sachs predicting a rate cut around September due to increasing pressure on the lira.

However, Governor Fatih Karahan, who was a deputy bank governor before being appointed chief by President Erdogan in February, seemed to counter this expectation.

“We are observing signs of demand rebalancing and its impact on prices. It is not prudent to draw conclusions from a single data point in this period of high volatility. We act with the determination and caution of a central bank,” Karahan stated.

QNB Finansbank noted that Karahan’s comments emphasized it was too early to view the June inflation dip as a trend change and aimed “to prevent expectations of an early interest rate cut.”

The central bank expects disinflation to take hold in the second half of the year and forecasts an end-year rate of 38% due to its tight policy stance. Economists polled by Reuters expect the inflation rate to fall to around 42% by the end of the year.

USA International Trade Administration, Public domain, via Wikimedia Commons

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