Why wasn’t inflation expectation revised upwards? ‘Oxymoron’ statement from Osman Cevdet Akçay

Why wasn’t inflation expectation revised upwards?  ‘Oxymoron’ statement from Osman Cevdet Akçay

The Central Bank of the Republic of Turkey (CBRT) maintained its inflation expectations. The new President of CBRT, Fatih Karahan, made the presentation of “Inflation Report 2024-I”. CBRT President Karahan stated that inflation expectations are maintained at 36 percent at the end of 2024, and then at 14 percent at the end of 2025.


Cevdet Akçay, who is known as a popular name in the market, said at the end of the meeting: “There is a question that was not asked, I can ask and answer it if you want. ‘Why didn’t you revise 36 up?’ He asked the question and explained the reason why the target was not changed as follows:

“When the process is not understood correctly, questions arise such as why the 36 percent inflation forecast was not revised upwards. In the system we are currently working in, the weighted average funding cost and deposit interest link was broken, the policy rate and inflation link was broken, and the interest rate link was broken.

We have been re-establishing it for seven months. These ties will be re-established. Data will accumulate. You will use field data and model. From there you will need to go from 36 to 38. Friends who know modeling will understand me very well that this is very difficult and even close to impossible.

Rather than changing the 36 target, it is much more meaningful to implement measures that will constantly bring us closer to that target. Otherwise, you will attach unnecessary importance to the work you do. This normalization process will actually provide a suitable environment for colleagues working in modeling by re-establishing ties with the accumulated data. We’re not even at that point yet.

Its 36 targets are ambitious; But in my opinion, a central bank that sets unambitious targets is an oxymoron. An ambitious but achievable target is much better at lowering and correcting inflation expectations than an unambitious and easily achievable target. Therefore, we strongly believe in the correctness of what we are doing.”

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