Turkey’s central bank pledged not to compromise from its current policy mix aimed at reining in runaway inflation, indicating that its actions are endorsed by the government of President Recep Tayyip Erdogan.
The bank, which has raised its key interest rate to 35% from 8.5% since June, said in a biannual report that it’s seeing eye-to-eye with Turkey’s “decision makers” on the need to slow price growth, which surged past 60% last month.
Governor Hafize Gaye Erkan’s remarks in the Financial Stability Report on Thursday highlight her efforts to convince investors that she won’t be forced by the government to go back on her pledges for higher borrowing costs until inflation is under control. Before appointing Erkan in June, Erdogan fired three governors for not doing enough to keep borrowing costs low and boost economic growth.
Investor faith in the continuation of Erkan’s tight monetary policy is critical for Turkey to start attracting foreign capital to its financial markets. Foreign money all but abandoned Turkish debt and cut exposure to equities in recent years, when Turkey opted for growth-at-all-costs policies, losing control of consumer prices.
“Decision makers” and other economic actors “are truly aware of and in agreement over” the need for price stability, Erkan said in the report. “We will not compromise on our aims of price and financial stability and will move with determination.”
The report said the central bank would continue to maintain “strong monetary tightening,” which has resulted in a marked slowdown in consumer loans.
Source : Bloomberg