Hafize Gaye Erkan, the Governor of the Central Bank of Turkey (CBRT), made significant statements regarding the measures taken to combat inflation and the future targets. Erkan revised the year-end inflation forecast from 22.3% to 58%, but emphasized that this increase is a temporary situation and they have initiated a monetary tightening process to ensure price stability. Here are the key points from Erkan's statements:

Monetary Tightening Process:

The Central Bank Governor stated that they have initiated a monetary tightening process to achieve a permanent reduction in inflation and they will strengthen it as needed. Along with interest rate hikes, selective credit and quantitative tightening measures will also be implemented. #interestrate

Future of Inflation:

Erkan stated that the current inflation surge will be temporary, and they aim to lay the groundwork for disinflation to begin in 2024. They further predict that a period of stability will commence in 2025, leading to a faster decline in inflation.

Erkan expressed confidence that inflation's main trend and expectations will consistently improve during the disinflation process, and the decisions taken will reflect this improvement by the second quarter of 2024. She highlighted that essential goods, food, and energy items have a significant impact on inflation, while the contribution of the services sector remains stable.

Domestic Demand and Current Account:

Erkan mentioned that strong domestic demand has been effective in the economy, while total supply has been more moderate. They predict that selective credit tightening measures will keep domestic demand in balance, and they expect a significant improvement in the current account balance in the second half of the year due to the impact of monetary tightening measures.

Exchange Rate and Other Factors:

The Governor acknowledged that exchange rate pass-through has increased, but she stated that the monetary tightening process will support exchange rate stability. Erkan also pointed out that wage increases have led to cost increases, which will be reflected in prices within a few months. Additionally, she mentioned that price increases in the service sector are still at high levels, and rent increases also have an impact on inflation.

Determination and Independence:

Erkan emphasized the importance of managing expectations to break the inertia in inflation and stated that they will use all tools with determination until inflation reaches single digits, avoiding any political statements. She underlined that the Central Bank will make independent decisions.

Future Plans:

Regarding the weak performance of commercial loans, Erkan mentioned they expect a recovery in July. They also plan to diversify Turkish lira savings instruments and support the deepening of capital markets. Furthermore, she disclosed that reserves have strengthened, financing conditions have improved, and exchange rate volatility has decreased.

Inflation Forecasts:

Erkan shared the updates on inflation forecasts, indicating that they have raised the year-end inflation forecast to 58%, set the 2024 forecast at 33%, and established the 2025 year-end inflation forecast at 15%. #inflations #TCMB

In Summary:

According to the statements of CBRT Governor Hafize Gaye Erkan, the monetary tightening measures in the fight against inflation will continue with determination, and a decrease in inflation is expected in the coming years. The goal is to implement cautious policies and achieve economic stability through independent decisions. The temporary inflation surge is expected to be balanced in the near future, and a disinflation process is foreseen to begin. #CBRT #Turkey