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Turkish central bank ready to keep tight policy until lasting fall in inflation

16 December 2020 16:19 (UTC +04:00)

Turkey will continue to pursue a tight monetary policy in 2021 until inflation falls in a lasting way, newly appointed Central Bank of the Republic of Turkey (CBRT) Governor Naci Agbal said Wednesday, adding that the bank could tighten it further if necessary, APA reports citing Daily Sabah.

Last month the bank hiked rates by 475 basis points to 15% in its sharpest monetary tightening in more than two years, but surging prices in November pushed annual inflation up to 14%, putting more pressure on the bank, which will hold another rates-setting meeting next week.

Agbal, who took office in early November, told reporters and economists that the central bank was determined to meet its inflation forecast for end-2021 of 9.4%. He said the goal for 2023 was to achieve its long-held target of 5%.

“We are determined to achieve disinflation,” Agbal said.

In the near term, the 9.4% inflation forecast target for the end of 2021 is an intermediate target that must be followed and achieved, Ağbal said.

Inflation trends showed that the lira’s exchange rate continued to create an upside risk on inflation, he added.

Agbal emphasized that the bank's main policy tool will be the one-week repo rate and "interest corridor and late liquidity window will not be used as policy tools."

The lira has hit a series of record lows against the U.S. dollar this year but has recovered some ground in recent days.

Consumer prices in Turkey rose 2.3% month-on-month in November, according to data from the Turkish Statistical Institute (TurkStat), compared with an average market expectation of around 1%. In October, the annual inflation stood at 11.89%. Inflation had hovered near 12% since the beginning of the year.

The central bank governor also said that the CBRT will share a detailed road map for rebuilding its foreign currency reserves gradually next year, with purchases depending on supply and demand.

"Rediscount credits will continue to provide support. We expect it to be $21 billion in 2021. We will use other tools for the purpose of reserve accumulation within a transparent plan and under suitable conditions," Agbal said.

"The CBRT will not buy or sell foreign exchange to determine the level or direction of the exchange rates," he also said.

Emphasizing that the CBRT's aim to accumulate foreign exchange reserves and the exchange rate level would not be correlated which is created by the floating exchange rate regime that Turkey will maintain, Agbal said: “We will closely monitor the developments in reverse dollarization and reverse currency substitution along with the continuity of foreign savings arrival in Turkey.”

The rapid and permanent reduction of inflation and maintaining price stability are once again top priorities, Ağbal said, and “as long as we achieve this goal, the country's risk premium will decrease and this will positively affect the expectations about the economy, the appeal of Turkish lira assets will increase.”