Eyes will be on new Central Bank chief, inflation report

ISTANBUL

Eyes will be on Fatih Karahan, who took the helm of the Turkish Central Bank last week, as he is set to present the banks’ first quarterly inflation report of 2024 on Feb. 8.

Investors, who widely expect the continuation of the bank’s policies, which are focused on monetary tightening and disinflation, will seek clues about the path the bank will follow in the coming months during Karahan’s presentation.

The launch of the inflation report, which will include the bank’s inflation projections, will be Karahan’s first public appearance since the took the top job at the Central Bank. He had served as deputy governor at the bank since July last year.

Foreign investment banks do not see the appointment of Karahan, who replaced Hafize Gaye Erkan, as a change in policy direction.

Investment bank JP Morgan even argues that the Central Bank will be more hawkish under the new leadership.

“Governor Karahan is an excellent fit. With extensive experience, most of which was with the Federal Reserve Bank of New York, I have no doubt he will excel in this new role,” Treasury and Finance Minister Mehmet Şimşek wrote on the social media platform X on Feb. 4.

“I look forward to working with the new governor and his competent team in implementing our economic program,” Şimşek said.

Karahan said in a statement at the weekend, “We are determined to maintaining the necessary monetary tightness until inflation falls to levels consistent with our target.”

He reiterated that the main objective and priority for the Central Bank is to achieve price stability.

There is good reason to expect that the team of Şimşek-Karahan will now deliver what team Şimşek-Erkan was delivering, analysts at Commerz Bank said in a note.

The markets will expect Karahan to follow conventional monetary policy strictly, there will need to be very clear clues about his stance, they said.

The Central Bank delivered a cumulative 3,650 basis point hike in its main policy rate between June last year and January 2024 when Erkan was the governor.

“Given our view of stickier inflation pressure in the near-term in combination with the appointment of the new governor, we see room for another 250 basis points or even 500 basis points of front-loaded tightening. The latter is not yet priced in,” Deutsche Bank said.

The Central Bank said last month, when raised the policy rate by another 250 basis points to 45 percent, that the monetary tightness required to establish the disinflation course is achieved and that this level will be maintained as long as needed.

The bank’s next rate-setting meeting will take place on Feb. 22.