Central Bank targets single-digit inflation

ANKARA

The first objective is to bring down inflation to single digits, and then to the ultimate target of 5 percent, Turkey’s Central Bank has said in its Monetary and Exchange Rate Policy document for 2020, released on Dec. 5.

Monetary policy will be set so as to bring inflation to the target gradually, the bank added.

According to the latest official data, consumer prices increased by 0.38 percent in November from October for an annual increase of 10.56 percent.

In its new economic program, unveiled in September, the government forecasts that consumer price inflation will be 12 percent at the end of this year.

The government’s inflation targets for next year and 2021 are 8.5 percent and 6 percent, respectively. The government expects inflation to further ease to 4.9 percent in 2022.

“Notwithstanding the recent significant improvement in inflation dynamics, Turkey’s inflation rate is still higher than that of peer economies. The cautious stance in monetary policy should be sustained to achieve a lasting disinflation process,” the bank said in the policy document, adding that the continuation of the downward trend in inflation is of great importance for reducing the country risk premium and lowering long-term interest rates.

The bank noted that on the back of the improvement in inflation outlook, it delivered gradual rate cuts in July, September and October, eventually bringing the policy rate, which stood at 24 percent in the first half of 2019, down to 14 percent.

It also said the Monetary Policy Committee (MPC) will hold a total of 12 meetings to set key interest rates.

This year, the MPC has already held seven meetings and the final rate-setting meeting of 2019 is scheduled for Dec. 12.

According to the document, one-week repo auctions will continue to be the main policy instrument of the Central Bank in 2020.

The bank said it will maintain its policy to increase reserves “as long as the market conditions allow.”

“To contribute to banks’ Turkish Lira and foreign exchange liquidity management, the Central Bank will, as it did in 2019, remain as a stabilizing actor and support financial stability as required by the market condition.”

The Central Bank has vowed to use the communication policy effectively as a supportive instrument in the upcoming period.

As part of this policy, the Central Bank will continue to arrange technical meetings with investors, analysts and economists.

The bank also said it will continue to use required reserves in an effective and flexible way as a fine-tuning tool supplementary to its main policy instrument of short-term interest rates in 2020.