New central bank governor says monetary policy will focus on inflation

Turkey's monetary policy strategy in the new period will focus on inflation and economic activity, new Central Bank of Turkey governor Murat Uysal said on Monday in an interview with Turkey’s state-run Anadolu Agency.

Turkish President Recep Tayyip Erdoğan’s decision last week to dismiss Central Bank of Turkey Government Murat Çetinkaya came like a bombshell for investors and analysts, who have since expressed concerns over the bank’s independence.

The Turkish president reportedly told lawmakers from the ruling Justice and Development Party (AKP) that Çetinkaya had resisted repeated instructions to lower interest rates, which, according to Erdoğan, should lower inflation.

Most commentators expect Uysal to follow Erdoğan's orders and cut interest rates at a fiscal board meeting later this month.

"I would like to indicate that the design of monetary policy processes in the new period will be based on a data-focused approach that takes into account all macroeconomic indicators, primarily inflation and economic activity," Uysal said.

Çetinkaya's successor said price stability lowers interest rates, boosting growth potential. He added that a process of disinflation would be essential for strengthening economy recovery in Turkey.

When asked about the doubts over the central bank's independence, Uysal emphasised the distinction between instrument independence and goal independence.

The bank's independence essentially means instrument independence, meaning that the institution independently determines the instruments and methods that it will implement to fulfil its duties as described in the Central Bank Law, Uysal said. However, the new governor did not elaborate on the independence of determining monetary policy.