The Turkish central bank’s tight monetary policy will remain in place as expectations of high inflation require such a stance, its new governor told investors in his first call since he took office, according to sources.
Inflation targeting remains intact and expectations of high inflation require tight policy, Bloomberg quoted Central Bank of the Republic of Turkey (CBRT) Governor Şahap Kavcıoğlu as saying, citing a person with direct knowledge of his presentation.
Two sources told Reuters that a senior bank official said on the call that there would be no premature interest rate cuts and that inflation was now close to the upper bound of its forecasts.
Kavcıoğlu himself this week said the bank would continue to keep its benchmark policy rate above inflation until there is a permanent fall in consumer prices.
“The high levels of inflation and inflation expectations in the current period require a strict monetary policy stance,” he said.
The annual inflation, which edged higher to 15.6% in February, is expected to jump to over 16% in March, surveys showed Wednesday, rising for a sixth straight month.
Kavcıoğlu was named CBRT governor on March 20, replacing Naci Ağbal, who was fired.
Kavcıoğlu’s appointment came two days after the CBRT hiked its benchmark policy rate by a larger-than-expected 200 basis points to 19% on March 18 to tackle the rising inflation and support the Turkish lira.
The lira was some 1.37% stronger at 8.1388 against the U.S. dollar at 5:45 p.m. local time.
Under Ağbal, the bank tightened the one-week repo rate by 875 basis points since November with a hawkish stance against inflation.
“They are saying all the right things” and will probably “hold tight” for now, said one source.
Asked whether the policy rate of 19% would be raised further if needed, Kavcıoğlu did not clearly answer “yes” and said the bank will monitor data before the next policy meeting and do what needs to be done, said a separate person on the call.
In an interview with Bloomberg this week, Kavcıoğlu dismissed “prejudiced” expectations of an early rate cut in April or the following months.
He will head his first Monetary Policy Meeting (MPC) meeting next month.
Kavcıoğlu also stressed a commitment to the 5% inflation target by 2023 and added that the bank is determined to reinstate the credibility of the lira.
The bank expected a maximum of 17% inflation in March and a bit more in April, according to a February forecast.
Inflation was expected to rise through April when Wall Street bank Goldman Sachs expects it to touch 18% before dipping.
March inflation data will be released on April 5.
