Cautious monetary stance to continue to keep inflation falling, Turkey's Central Bank governor says

“Inflation in Turkey is on a falling trend,” Erdem Başçı told ministers, according to the Central Bank’s website.

“For the fall in inflation to continue, cautious monetary and fiscal policies should be maintained and measures regarding food supply should be adopted.”

March figures showed consumer prices rising 1.19 percent month-on-month, above economists’ expectations.

Turkey’s Central Bank left key interest rates unchanged last week, holding fire ahead of a June parliamentary election, even as the lira’s slide to record lows risks fuelling inflation. 

The one-week repo rate stands at 7.50 percent.

“Inflation expectations have still not yet reached a desirable level,” Başçı said in his presentation, adding that a “partial correction” in food prices was likely in the second half of the year.

The lira has fallen around 15 percent against the dollar this year, underperforming almost every other major emerging market currency apart from the Ukrainian hryvnia, according to Thomson Reuters data.

Although the lira’s fall risks stoking inflation, the Central Bank has held off from what economists say are much-needed rate increases, opting instead to employ more obscure policy tools in an attempt to defend the currency.

Investors have been particularly worried about perceptions of political influence on monetary policy after President Tayyip Erdoğan repeatedly called for lower interest rates and said that those who defended high rates were “traitors.”