Turkish Central Bank governor: Tight fiscal policies to resume until inflation drops
by Daily Sabah with AA
ISTANBULJan 06, 2016 - 12:00 am GMT+3
by Daily Sabah with AA
Jan 06, 2016 12:00 am
Central Bank of the Republic of Turkey (CBRT) Governor Erdem Başçı said the implementation of the announced structural reforms might largely increase growth potential.
The presentations that Başçı delivered to the Council of Ministers under the main headings of "Balanced Growth," "Monetary Policy and Normalization" and "Inflation" were released on the CBRT's official website.
Explaining that the improvement in current account balance continues, Erdem said the rise of demand in European Union countries supports growth and stabilization. "The implementation of the announced structural reforms might significantly boost growth potential. The current monetary policy stance is tight against the inflation outlook, balances foreign currency liquidity and supports financial stability."
He stressed that tight monetary policies will continue until a significant improvement is achieved in the inflation outlook. According to Başçı's statements, the bank will start taking steps toward simplification in monetary policies as of its next meeting if volatility persistently drops with the start of normalization in global monetary policies.
The CBRT is set to offer an open letter to the government as the inflation stood at 8.81 percent, which is above the expected target of 5 percent for 2015. It will explain reasons for the deviation from the target and measures that will be taken to bring down the inflation toward the target level in accordance with Article 42 of the Central Bank Law. The letter, which will be signed by Başçı and a CBRT deputy governor, will be offered to Deputy Prime Minister Mehmet Şimşek on behalf of the government. In the CBRT's basic policy document titled "Monetary and Exchange Rate Policy in 2015" that was released on Dec. 10, 2014, it was iterated that the main purpose of the bank was to ensure price stability and – as a part of the agreement that it reached with the government – the inflation target was set at 5 percent for 2015, 2016 and 2017 to ensure price stability.
The document suggested that the uncertainty band, which is a part of the CBRT's accountability, is 2 points in both directions (+/- 2 points). It was stated that if inflation deviates more than two percentage points from the year-end target at the end of each three-month period throughout the year, reasons for the deviation, as well as due measures to be taken and the other measures that were already taken, will be released to the public via the Inflation Report. Also, the document stipulates that the CBRT will write an open letter to the government if the realized inflation remains out of the uncertainty band at the end of the year. Analysts suggest that high volatility in the Turkish lira-dollar parity throughout the year caused the inflation to exceed the target level in 2015. Başçı and CBRT Deputy Governor Mehmet Yörükoğlu addressed an open letter to former Deputy Prime Minister Ali Babacan, as the bank failed to achieve the inflation target at the end of 2014. It was emphasized in the conclusion part of the letter that developments in the foreign exchange rate and food prices as well as adjustments in administered prices caused the inflation to exceed the target level in 2014.