Türkiye’s central bank is continuing to implement a road map toward setting the ground that will ensure the sustainable start of disinflation in 2024 by taking “gradual and decisive” steps, the monetary authority’s chief said Monday.
Türkiye’s annual inflation subsequently eased to as low as 38.21% in June but jumped again to nearly 48% last month due to a decline in the Turkish lira as well as various tax hikes Ankara recently introduced.
Officials have acknowledged it would rise further toward the end of 2023.
The central bank more than doubled its forecast last month and sees the consumer price index (CPI) at 58% at year-end, up from 22.3% in its previous inflation report in March.
“We are continuing to implement our road map, which we shared with the public at our Inflation Report meeting, with gradual and decisive steps to create the groundwork to ensure the sustainable start of disinflation in 2024,” Central Bank of the Republic of Türkiye (CBRT) Governor Hafize Gaye Erkan told a meeting with jewelry exporters.
Erkan’s remarks came after the central bank shocked the market last week by lifting its benchmark policy rate by a larger-than-expected 750 basis points to 25%, signaling a new determination to address rebounding inflation as part of a broader policy reversal.
The central bank embarked on a tightening cycle in June, after President Recep Tayyip Erdoğan picked Erkan, a former Wall Street banker, as governor. She is the first woman to run the CBRT.
Erdoğan also named Mehmet Şimşek, a veteran policymaker, as treasury and finance minister. Şimşek has stressed his team has political support for its plan, which should see inflation begin to cool around May of next year.
As part of the policy pivot, the central bank has tightened its one-week repo rate by a combined 1,650 basis points since June, raising it from 8.5%. The decision last Thursday left the policy rate at its highest level since 2019 and sent the lira to its strongest level since mid-July.
The bank’s policy committee said it would tighten "as much as needed in a timely and gradual manner" to cool inflation. JPMorgan predicted the policy rate will hit 35% by year-end.
The bank said rising oil prices and a deterioration in expectations suggest that inflation will end the year at the upper bound of its forecasts.
Still, "disinflation will be established in 2024," it added.
Aside from the tightening, there have been other signs of lasting change.
Authorities have raised taxes to limit budget deficits, cooled domestic demand and raised foreign exchange reserves by about $20 billion (TL 531.32 billion) to head off any possible current account deficit crisis.
The central bank has selectively tightened credit and begun rolling back a foreign exchange-protected deposit scheme that safeguarded lira deposits against forex depreciation
Türkiye’s top officials will publish a comprehensive economic program, which they say will reduce uncertainties, next month.
Vice President Cevdet Yılmaz earlier this month said the new medium-term program will detail a transition to increased economic and financial predictability and include three-year macro forecasts. The investor roadshow will also accelerate, he added.
Şimşek will kick off the investor roadshow on Sept. 19 at Goldman Sachs headquarters in New York, Reuters reported on Friday.
After meetings in New York and at the United Nations – which Erdoğan is also expected to attend – Şimşek listed plans for trips to London and an International Monetary Fund (IMF) event in Morocco, as well as other meetings in Japan, Singapore and Hong Kong by the end of the year.
