© Reuters. FILE PHOTO: A logo of Turkey’s Central Bank is pictured at the entrance of its headquarters in Ankara, Turkey October 15, 2021. REUTERS/Cagla Gurdogan/File Photo
By Tuvan Gumrukcu, Huseyin Hayatsever and Nevzat Devranoglu
ANKARA (Reuters) -Turkey’s central bank will maintain a tight policy stance until inflation drops to target, the bank’s new head said on Thursday, keeping a year-end inflation forecast of 36% despite expectations it might need to rise.
Presenting a quarterly inflation report in Ankara, Fatih Karahan – appointed to the post on Saturday after a surprise shuffle – kept all options open, saying the bank would reassess its stance should there be a significant deterioration in the inflation outlook.
He said another rate hike was not currently needed but it was too early to talk about easing, pushing off any expectations of a quick easing cycle and reinforcing analysts’ views that he will remain hawkish until inflation begins to cool around mid-year.
The bank hiked its key interest rate to 45% from 8.5% in June and signalled last month that the tightening cycle was complete.
“We are determined to maintain the necessary monetary tightness until inflation falls to levels consistent with our target,” Karahan, who had been a bank deputy governor since July, said in his first in-person comments as chief.
INFLATION RELIEF
Turkey’s inflation rate climbed to an annual 64.9% last month, having risen 6.7% on a monthly basis on the back of some big one-off annual price rises and a 49% minimum wage increase.
Karahan said that, although January’s inflation was higher than expected, the minimum wage rise alone would not derail the central bank’s projections, which are lower than those of many analysts.
A Reuters poll of economists suggests inflation will drop to around 42% by year end.
The central bank held its inflation forecasts out to end-2026, when it is seen falling to 9%. “Rapid disinflation” will begin after inflation peaks in May of this year, Karahan said.
FIFTH BANK CHIEF IN FIVE YEARS
Karahan was appointed after the surprise resignation last Friday of former bank governor Hafize Gaye Erkan, who cited the need to protect her family from what she called a media smear campaign.
The first woman to run the bank, Erkan began aggressive monetary tightening in June to cool inflation, orchestrating a dramatic U-turn after years of easy money and soaring prices under President Tayyip Erdogan.
Karahan, a former Federal Reserve Bank of New York economist, is the fifth governor Erdogan has named in as many years. As deputy, he played a key role designing the tightening cycle.
“We have announced that we completed the tightening cycle but it is too early to talk about a rate cut,” Karahan said.
He added that the central bank expected the easing cycle to begin slightly later than it had anticipated at its last inflation update in November.
