Türkiye’s Central Bank revises its inflation target for 2023

ANKARA

The Central Bank raised its end-2023 inflation forecast to 58 percent from 22.3 percent in its previous report, its governor, Hafize Gaye Erkan, said on July 27, vowing to continue the bank's gradual monetary tightening.

She said the exchange rate of the lira, which has weakened sharply this year, was the main factor in the upward revision, with the end-2024 inflation prediction raised to 33 percent from 8.8 percent.

Speaking in Ankara, Erkan said in her first news conference that the bank's inflation forecast for end-2025 was 15 percent, with the bank having started the monetary tightening process to reduce inflation permanently.

“We will further strengthen monetary tightening as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved,” she said.

“We are closely monitoring indicators for inflation and underlying trend of inflation. We will continue to decisively use all our tools in line with the main objective of price stability.”

In addition to the rate hike, the Central Bank has taken decisions on selective credit tightening and quantitative tightening to support the monetary tightening process, Erkan said.

“We will begin to feel some of the cumulative positive effects of our rate hike decisions, along with our quantitative and selective tightening decisions in late 2023 and particularly in the underlying trend of inflation in the second quarter of 2024,” she said.

“Once we enter the period of disinflation process, temporary corrections in relative prices will be replaced by exchange rate stability, improved current account balance, fiscal discipline, permanent strengthening in capital flows and increased reserves.”

The objective of the bank’s monetary policy is to achieve price stability, which is a “sine qua non” for macrofinancial stability, Erkan added.

“In our monetary tightening process, we are making the gradual and steady rate hikes more holistic and stronger through quantitative tightening and selective credit tightening,” she said.

“We have initiated efforts to diversify Turkish lira savings instruments and support the deepening of capital markets, which we will announce shortly. We will dynamically optimize the monetary tightening process by continuously measuring the effects of our decisions on inflation, markets, monetary and financial conditions. Through a gradual and steady progress, our aim is to restore anchoring of expectations as well as predictability.”