The Turkish Central Bank surprises the markets with its inflation expectations

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The Turkish Central Bank surprises the markets with its inflation expectations

Recently, on Thursday, the Central Bank of Turkey increased its inflation projections by over twice the previous amount. This move is aimed at improving the bank’s credibility with investors, which has been negatively impacted by overly optimistic projections in previous years.

According to Hafiza Ghaya Erkan, the newly appointed head of the Turkish Central Bank, there will be a gradual tightening of monetary policy, with selective credit tightening measures to be implemented.

During her initial press conference as the central bank governor, the speaker announced the quarterly inflation report and confirmed that inflation would increase in the near future. The effects of the measures implemented would be noticeable in the second quarter of 2024.

According to Arkan, the Central Bank has increased its inflation forecast for the end of 2023 to 58% from the previous forecast of 22.3%. Additionally, the inflation forecast for the end of 2024 has been raised to 33% from 8.8%.

During the press conference in Ankara, Erkan stated that the bank predicts inflation to reach 15% by the end of 2025.

Last year, Turkey experienced a significant increase in its inflation rate, reaching 86%. This was due to President Recep Tayyip Erdogan’s focus on a growth-oriented approach that involved a very lenient monetary policy. Although the rate of price growth decreased to nearly 38% in June, it is expected to rise again, but only for a short period, according to Arkan.

Under Erkan’s leadership, the central bank has increased the key interest rate by 900 basis points to 17.5%. However, this rate is still lower than what many analysts were expecting and when adjusted for prices, Turkey’s benchmark rate remains in negative territory.

On Wednesday, the Turkish Economic Coordination Council, headed by Vice President Cevdet Yilmaz, announced its goal to bring down the inflation rate to single digits in the country’s next stage of economic development.

The inflation rate in Turkey has been steadily decreasing since November of last year. It had reached the highest level in 24 years, surpassing 85 percent in October of the same year.

Based on official statistics, Turkey’s annual inflation rate has decreased for the eighth consecutive month, reaching approximately 38.2 percent in June, compared to about 39.6 percent in the previous month.