Turkey Must Enforce Inflation Goal

Turkey’s central bank must enforce a goal for inflation and re-instill confidence in investors that it will achieve it, said Mike Harris, founder of Cribstone Strategic Macro, which specializes in advice on emerging markets, Ahvalnews reported. The central bank’s current policies of reacting to movements in the lira threaten to cause a financial crisis in the country, Harris told BloombergHT television. Policymakers should set an inflation goal of, say, 7%, and pursue the objective convincingly, he said. While the bank says its current target is 5%, inflation stood at 12.2% in May and is set to accelerate further. “The central bank should tell the market what it is trying to achieve and behave as though it is trying to achieve that,” Harris said. The Turkish central bank has raised interest rates by a total of 500 basis points this year to 17.75% as it reacted to a slump in the lira’s value against the dollar. Investors have criticized the bank for being too slow to react to market developments, acting reactively rather than proactively, and of pandering to the political wishes of President Recep Tayyip Erdogan, who wants to stimulate more economic growth and believes interest rates are inflationary.