Turkish central bank vows to keep policy rate above inflation
Headquarters of the Central Bank of the Republic of Turkey, Ankara, July 2, 2019. (Sabah File Photo)


Central Bank of the Republic of Turkey (CBRT) Governor Şahap Kavcıoğlu said Friday the policy rate will be set above actual and expected inflation, according to two sources who are participating in the bank’s investor meeting.

In his speech, Kavcıoğlu said the benchmark rate – the one-week repo rate – will be kept above inflation until strong indicators point to a lasting fall and the central bank reaches its 5% medium-term target, according to one of the sources.

Kavcıoğlu also said the bank maintained its outlook for inflation to show a marked fall at the start of the fourth quarter at the latest, sources said. The policy rate currently stands at 19%.

Asked whether the current inflation outlook could require a policy rate hike, Kavcıoğlu said the current inflation path does not indicate such a need, according to two sources.

But the governor also added that the monetary committee policy would take the necessary decision in case of a surprise development.

The nation’s inflation has been stuck in double digits for most of the last four years. It dipped unexpectedly to 16.59% in May, when price hikes were delayed due to a full COVID-19 lockdown in the first half of the month.

It had quickened to 17.14% in April, the highest since mid-2019.

Consumer inflation is expected to rise to 17% again in June, a Reuters poll showed this week. An Anadolu Agency (AA) survey Friday projected the annual inflation rate to have risen to 16.97% in the month.

The data is scheduled for release on Monday.

Kavcioğlu Friday said inflation could rise higher than expected this month and next, but added monthly moves do not affect its year-end forecast, sources said.

The governor said the bank was sticking to the inflation path outlined in its April inflation report, in which it forecast that inflation would fall to 12.2% by year-end, the sources said.

Kavcioğlu also said during the meeting that the bank could reach a swap deal with other central banks and was close to a deal with some, the sources said.

Turkey has ramped up talks with other countries over securing a currency swap agreement and Reuters reported last week that a deal with Azerbaijan looks likely to be the first achieved.