Turkey central bank chief to face probing questions at inflation meeting
Turkish central bank governor Şahap Kavcıoğlu may face a series of probing questions on interest rates and inflation at a meeting on Thursday, Dünya newspaper reported.
Kavcıoğlu, appointed by President Recep Tayyip Erdoğan in mid-March, has sympathised with the president’s view that high interest rates lead to more inflation, a theory that runs contrary to conventional economic wisdom.
Kavcıoğlu is due to announce the bank’s quarterly inflation report on live television and then answer the questions of economists and journalists on monetary policy.
Inflation, which nudged up to 16.2 percent in March, may accelerate to above 19 percent in April or May, said Gülay Elif Yıldırım, chief economist at the local Şekerbank, according to Dünya. Yıldırım said Kavcıoğlu will probably increase the central bank’s year-end inflation forecast to 11.5 percent from 9.4 percent at the meeting.
Turkish monetarypolicy makers left the benchmark interest rate unchanged at 19 percent this month even as price pressures increased. Two other members of the seven-member Monetary Policy Committee have been replaced since Kavcıoğlu's appointment. He says the bank will keep interest rates at above inflation and is determined to slow inflation to single digits.
Inflation may accelerate to 18 percent in the coming months, said Taner Özarslan at Sparta & Co. in Istanbul, Dünya reported. He said food prices will come under pressure during the Muslim holy month of Ramadan, which ends in the middle of May with a public holiday.
Turkey’s inflation rate has risen from less than 9 percent 18 months ago after the lira slumped to successive record lows against the dollar and the cost of food and other commodities climbed. Prices also rose steeply as the government stimulated consumer demand with cheap loans from state-run banks, a policy that led to an increase in demand for imports, which became more expensive as the lira tumbled.
Yıldırım said it will not be easy for Kavcıoğlu to lower interest rates this year due to the COVID-19 pandemic and “the current economic conjuncture”. The central bank may seek to keep borrowing costs at 1.5-2 percentage points above inflation and then move to lower them, but data suggests that may not be possible until September or October, Özarslan said.
Much will depend on the value of the lira - expectations for the level of interest rates may change should the currency break through a psychological level for investors of 8.5 per dollar, he said.
The lira was trading up 0.3 percent at 8.17 per dollar on Wednesday afternoon local time.