No need for additional interest rate increase

No need for additional interest rate increase


Fatih Karahan, the new Governor of the Central Bank of the Republic of Turkey (CBRT), appeared in front of the cameras to present the first inflation report of the year. Giving the message that the level of tightness in monetary policy will continue, Karahan stated that inflation will decline after its peak in May. Underlining that they will not allow any deterioration in the inflation outlook, Karahan emphasized that they will bring the economy to permanent price stability in the medium term.

THE BALANCED PROCESS IN DEMAND HAS STARTED

Stating that the process of balancing demand has begun with tightening steps, Karahan said, “The current level of retail sales is still resilient. The import trend has weakened recently. Gold imports, which increased by 8.5 percent in the first half of 2023, decreased by 18.6 percent in the second half. Our monetary tightening process is focused primarily on gold and durable goods.” “It has started to contribute to the current account balance through imports, especially consumer goods. We foresee the continuation of the improvement in the current account balance,” he said.

HOUSING PRICE INCREASE RATE SLOWED DOWN

Central Bank Governor Karahan shared that rents, which are an important reason for the rigidity in service inflation, are closely followed as an indicator and said, “The high increase in housing prices is reflected in the rents in a delayed and high way. After the tightening, the rate of increase in housing rents slowed down in big cities. The slowdown in the increase in housing prices is due to the inertia in service prices.” “It will contribute to its reduction,” he said.

TIGHTNESS WILL LAST AS LONG AS NEEDED

Pointing out that they find it important for the course of monetary policy to see a significant improvement in the main trend of inflation in line with the targeted path, Karahan said: “We evaluate that the main trend of inflation will weaken after the rise in January. The current level of the policy interest will be maintained as long as necessary. There are two conditions here. The main trend of monthly inflation will be weakened.” “The trend is to show a significant decrease. The second is that inflation expectations converge to the predicted forecast range. If there is a significant deterioration in inflation, monetary tightness will be reviewed.”

OUR PRIORITY IS PRICE STABILITY

Karahan answered a question about whether the Central Bank would take a hawkish stance as follows: “Our first goal is price stability. We want to reduce inflation to the desired level this year and pave the way for disinflation in 2025. Our evaluations show that the tightening is working. An additional interest rate increase is necessary. “We do not evaluate it at the moment. But if the outlook deteriorates, we will review our decisions.” Reminding that they announced that they had ended the interest rate increase cycle, Karahan said, “But it is too early to talk about a reduction.” Speaking about credit card expenditures, Karahan said, “There was an increase in expenditures in December. We think that regulations should be made.”

INFLATION FORECAST WAS MAINTAINED

The Central Bank maintained its inflation forecasts for 2024 and 2025 at 36 percent and 14 percent. Inflation is expected to decline to single-digit levels in 2026, completing it at 9 percent, and stabilizing at the 5 percent target in the medium term.

DIGITAL TL IS PROGRESSING DYNAMICLY

Central Bank Deputy Governor Hatice Karahan also said that innovative work in payment systems continues intensively. Karahan added that they have started Phase-2 of the ‘Digital Turkish Lira Project’ and that the work is progressing dynamically.

AN AMAZING BUT REACHABLE GOAL

Answering questions at the information meeting held to introduce the first inflation report of the year, Central Bank Deputy Governor Osman Cevdet Akçay said, regarding the year-end inflation projected to be 36 percent, “It is an ambitious but achievable target. We strongly believe in the correctness of what we are doing.”



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