World Economy

Turkey CB Says Wants to Rein in Inflation

The central bank chief says the goal is to lower inflation to  single digits in the shortest time.
The central bank chief says the goal is to lower inflation to  single digits in the shortest time.

The Turkish central bank’s main goal this year is to increase the effectiveness of its monetary policy and rein in double-digit inflation, Governor Murat Cetinkaya told Reuters in an interview.

Cetinkaya, speaking by telephone from the World Economic Forum in the Swiss resort of Davos, also said the bank would take all necessary monetary policy steps to bring inflation down to single digit as swiftly as possible.

Turkey’s annual inflation stood at 11.92% at the end of 2017, far above the bank’s official target of 5%. At its most recent policy-setting meeting, the bank this month left its top rate steady at 12.75%, in line with expectations.

“Our fundamental goal is to increase the effectiveness of monetary policy and accelerate the disinflation process,” Cetinkaya said when asked about his priorities for 2018. “I want to emphasize again that we will maintain a tight monetary policy decisively until the inflation outlook displays a significant improvement, independent of base effects and temporary factors, and becomes consistent with the targets.”

“Our goal is to lower inflation to single digit in the shortest time and then to bring it towards target. To achieve this, all the necessary monetary policy steps will be taken decisively,” he said.

But investors have been skeptical about the bank’s ability to bring down inflation, given that it faces the challenging task of balancing volatile prices with President Tayyip Erdogan’s demands for cheaper credit. Erdogan, who has described himself as an “enemy” of interest rates, has repeatedly called for lower rates to fuel bank lending and boost the economy.

Cetinkaya said the government’s fiscal policy was supportive of the bank’s efforts to fight inflation. “Reflecting the coordination of monetary-fiscal policy, we see an increase in the support which public finance is giving in the fight against inflation. There are joint efforts towards making this coordination permanent and systematic,” he said.

Erdogan’s comments, and the bank’s reluctance to use traditional policy tools to tighten—it uses a complex system of multiple rates—have reinforced investor concern that the central bank is less than independent, and this has weighed on the lira currency.

“Monetary policy has persistently proven unable to bring inflation near to target and a complex policy framework undermines transmission mechanisms,” ratings agency Fitch said last week.

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