Despite very high and sticky inflation, economist bet that Central Bank of Turkey will being its easing cycle either in December or January (2025), mainly because President Erdogan will not tolerate high rates much longer. This scenario may prove to be true at the end, but for the time being CBT has made it publicly clear that it has not intention of easing before taming the inflation monster. The most hawkish member of CBT’s Monetary Policy Committee, economist Prof Cevdet Akcay was very specific in his interview with the Economist: “As long as monthly inflation does not enter a sustainable downward trend, we will continue to implement tight monetary policy; there is no other option.”
he Economist magazine included important views by the Deputy Governor of the Central Bank of the Republic of Turkey (CBRT), Cevdet Akçay. Akçay drew attention to the seriousness of the current situation by saying, “As long as monthly inflation does not enter a sustainable downward trend, we will continue to implement tight monetary policy; there is no other option.”
The magazine stated that there were many reasons for high inflation in Turkey, and emphasized that the imbalance between monetary policy and government spending was prominent among these reasons. In particular, it was noted that with inflation below the policy rate after a 3-year hiatus, speculations about a rate cut pointed to November, but that easing could begin later as inflation approached 3% in September.
In his statements to The Economist Akcay stated that thanks to high deposit rates, the share of Turkish Lira (TL) deposits is rising, while admitting that a strong TL was not welcomed by exporters.
Yet he resolutely defended the policy noting that faster depreciation of the TL could create upward pressure on prices. Akçay said, “A weak TL is a dead end for gaining competitive advantage. We are keeping monetary policy tight in order to control inflation; this could cause the TL to appreciate more in real terms.”
In addition, Akçay stated that the real increase in the TL was not a result of the targets but of the implemented policy. This situation once again revealed how critical the efforts to ensure Turkey’s economic stability are.
The Economist added that the new economic management team of economy czar Mehmet Simsek and CBT governors Fatih Karahan, Hatice Karahan and Cevdet Akcay were successful in regaining the confidence of foreign investors, while emphasizing that Turkish citizens were more cautious in this regard. It also pointed out that the different inflation expectations between the market and households were putting pressure on general inflation.
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