“CBRT not successful in curbing inflation”: The Governor

The Central Bank of the Turkish Republic’s (CBRT) “fight against inflation cannot be considered very successful,” the CBRT governor Şahap Kavcıoğlu said on October 27, as the bank raised its inflation forecast by 4,8 percentage points.

“We cannot consider (fight against inflation) very successful,” Kavcıoğlu said upon a question from a reporter on October 27, at the press conference on the inflation report in Ankara.

Stating that inflation is one of the most important problems facing both the CBRT and the government, he said that they have taken important measures to bring inflation down.

“We cannot consider ourselves very successful,” he said, adding, “Hopefully, the decisions we have taken and the policies we have implemented to bring inflation down will make us successful.”

“If there is inflation, there is a problem, and it is not right to talk about success. We are also aware of the problems of our citizens,” said Kavcıoğlu, adding that they have taken the necessary steps.

Low interest amid surging inflation

Türkiye’s inflation has been breaking decades’ records for months as it hit a 24-year high in September at 83 percent.

However, there is a growing dispute over the veracity of the official data. Some economists and critics argue that the real rate of inflation is higher than the official figure. The daily price index changes indicate a 186 percent increase in the current price index, according to ENAGroup, a group of independent researchers.

The Turkish Lira has lost nearly 29 percent of its value against the US dollar this year, nearly 50 percent since 2021.

Despite surging inflation, CBRT adheres to a stimulus policy by keeping the policy interest rate low, in line with the ruling Justice and Development Party (AKP) policy, which is based on export-led growth. The bank recently lowered the rate to 10,5 percent on October 20, announcing that they would further cut the rate to “one digit” at the following Monetary Policy Board meeting.

President Recep Tayyip Erdoğan has long been defending his position against high-interest rates, arguing that increasing policy rates cause inflation.

Increase the inflation forecast

CBRT raised its inflation forecast for the end of 2022 to 65.2 percent, the fourth increase this year, according to Kavcıoğlu. The Governor’s presentation indicated that inflation was seen peaking at around 85 percent before falling this year.

“Inflation will decrease rapidly on the back of continued supply, the maintenance of stability in exchange rates and the normalisation of pricing behaviour,” Kavcıoğlu said.

In addition, the bank raised its end-of-year inflation forecast to 22.3 percent from 19.2 percent.

There is no systemic risk

In order to curb dollarization amid low-interest rates and high inflation, the AKP government implemented the “Currency Protected Deposit Account” scheme in December 2021. It is thought that the plan will cost the Turkish government more than 200 billion liras.

Kavcıoğlu stated to Sözcü that the total payment of the scheme “will be announced at the end of the year together with the balance sheet. It’s not a big number anyway.”

Kavcıoğlu also said that there is no “systemic risk” for the banking system, as general managers of top banks conveyed their concerns to Minister of Treasury and Finance Nureddin Nebati on October 24 in a meeting.

Managers argued that “low-interest and long-term bonds in a high inflation environment would create systemic risks for the banking system.”

Kavcıoğlu said that the CBRT took measures and that there was no such risk.