Turkey’s central bank: The new governor continues to tighten his policy stance
2024-02-07
■ The year-on-year increase rate of the consumer price index in January reached 64.86%, accelerating to the high level since November 2022.
■ With the increasing risk of rising inflation, the lira/US dollar exchange rate has hit a historic low, further triggering vigilance.
On February 2, Erkan, governor of the Central Bank of Turkey (TCMB), suddenly announced his resignation, including protecting his family from slander and attack. Since taking office in June last year, the president has made adjustments to the unusually low-interest rate policy, raising the policy interest rate from 8.5% to 45.0%. As of January, this year, the market has given him high praise. The successor, Karahan, served as Vice President since July last year and has experience as an economist at the New York Federal Reserve. After taking office, Karahan stated, "If inflation expectations worsen, we will take action at any time." He emphasized the priority of ensuring price stability and resisting deflation, stated that monetary tightening will continue until inflation rates drop to the target level, and stated that he will continue to use his previous policy stance.
The year-on-year increase rate of the Consumer Price Index (CPI) in January reached 64.86%, accelerating to the highest level since November 2022. Significant increases have been made in education, transportation, and food. In addition, the increase in minimum wage (a 100% year-on-year increase) and the New Year's price adjustment have pushed up prices. Finance Minister Simsek pointed out that this is a temporary impact and is expected to converge from February onwards. Although the Central Bank of Turkey raised the policy interest rate from 42.5% to 45.0% at the monetary policy decision-making meeting on January 25, it will end the positive tightening phase in the future and will maintain the current level of understanding when necessary.
At the monetary policy decision-making meeting on February 22nd, the policy interest rate was maintained at 45.0%, which has been fully considered in the short-term financial market. According to the latest forecast from the central bank, the CPI inflation rate will reach a high point of 70-75% in May, and then drop to 36.0% by the end of the year. However, considering the lag in service prices and the impact of lira depreciation on inflation, inflation risk still exists. Since February, the exchange rate of Turkey’s lira against the US dollar has fallen by about 0.9%, and it once hit the historical lowest level in the middle of the 30-lira platform in Asia today. The real interest rate remains negative, and with the upcoming local elections at the end of March, concerns about President Erdogan's potential threat to the independence of the central bank may further strengthen vigilance against the depreciation of the lira.
■ With the increasing risk of rising inflation, the lira/US dollar exchange rate has hit a historic low, further triggering vigilance.
On February 2, Erkan, governor of the Central Bank of Turkey (TCMB), suddenly announced his resignation, including protecting his family from slander and attack. Since taking office in June last year, the president has made adjustments to the unusually low-interest rate policy, raising the policy interest rate from 8.5% to 45.0%. As of January, this year, the market has given him high praise. The successor, Karahan, served as Vice President since July last year and has experience as an economist at the New York Federal Reserve. After taking office, Karahan stated, "If inflation expectations worsen, we will take action at any time." He emphasized the priority of ensuring price stability and resisting deflation, stated that monetary tightening will continue until inflation rates drop to the target level, and stated that he will continue to use his previous policy stance.
The year-on-year increase rate of the Consumer Price Index (CPI) in January reached 64.86%, accelerating to the highest level since November 2022. Significant increases have been made in education, transportation, and food. In addition, the increase in minimum wage (a 100% year-on-year increase) and the New Year's price adjustment have pushed up prices. Finance Minister Simsek pointed out that this is a temporary impact and is expected to converge from February onwards. Although the Central Bank of Turkey raised the policy interest rate from 42.5% to 45.0% at the monetary policy decision-making meeting on January 25, it will end the positive tightening phase in the future and will maintain the current level of understanding when necessary.
At the monetary policy decision-making meeting on February 22nd, the policy interest rate was maintained at 45.0%, which has been fully considered in the short-term financial market. According to the latest forecast from the central bank, the CPI inflation rate will reach a high point of 70-75% in May, and then drop to 36.0% by the end of the year. However, considering the lag in service prices and the impact of lira depreciation on inflation, inflation risk still exists. Since February, the exchange rate of Turkey’s lira against the US dollar has fallen by about 0.9%, and it once hit the historical lowest level in the middle of the 30-lira platform in Asia today. The real interest rate remains negative, and with the upcoming local elections at the end of March, concerns about President Erdogan's potential threat to the independence of the central bank may further strengthen vigilance against the depreciation of the lira.