Turkish Central Bank chief urges ‘patience’ over inflation target

Turkish Central Bank chief urges ‘patience’ over inflation target

Turkish Central Bank chief urges ‘patience’ over inflation target

Central Bank chief Başçı sought to soothe concerns about rising inflation. DHA Photo

Central Bank Governor Erdem Başçı has sought to soothe concerns that the year-end inflation target will be missed and called for “patience,” hinting that food prices – the main driver of high inflation in the country – may surprise downward.

“Let’s not hurry to thinking that forecasts won’t be achieved,” he said speaking at the Istanbul Chamber of Industry (ISO) Joint Meeting of Professional Committees yesterday. “Let’s watch November and December inflation. Unprocessed food prices may surprise downward.”

Başçı said the Central Bank was estimating that the price rise in unprocessed food will drop to 7 percent at the end of year, contributing to an overall fall in inflation to 6.8 percent of the year-end forecast.

In its latest inflation report revealed on Oct. 31, the Bank revised its inflation estimation for 2013 to 6.8 percent, a considerable rise from the previous forecast of 6.2 percent, synchronizing it with government’s forecast in its Medium-Term Program.

Nevertheless, the Bank’s policies and steps are aimed at achieving its longer term target of fixing inflation at 5 percent, which is crucial for long-term interest rates to drop permanently to single-digit levels and for local companies to become indebted to banks easily, according to Başçı.

Pledging to maintain a cautious and determined stance until that target is achieved, he said this was “completely reasonable.”

He also noted that domestic demand and exports maintained their moderate growth trends and that a gradual improvement in the current account deficit, Turkey’s main economic weak spot, was expected to continue in 2014, excluding gold.

Despite the Central Bank’s endeavors to display a calm outlook, many analysts have been wary that even the revised forecast may not represent the reality, considering the high course of core and highlight inflation values.

“The Central Bank’s inflation target is optimistic because even though any price hike in natural gas, electricity or tobacco would not be made by the end of this year, it seems difficult for inflation to fall below 7.5 percent in these conditions,” T-Bank Chief Economist Veyis Fertekligil had said on Nov. 4, commenting on October inflation data that was announced at 1.8 percent.

The Bank, which has been battling with the steep devaluation of the Turkish Lira since May, when the U.S. Federal Reserve (Fed) first signaled that it may taper its asset purchase program, has been insisting that its top priority is still reducing inflation. Since the Fed’s announcement in May, the lira has been one of the hardest-hit currencies in the world.

“We need to get used to these ups and downs. We have been working on what to do against these since June. We are slowly clarifying the strategy that we are going to pursue there,” Fertekligil said.

The Central Bank has been targeted by many analysts and policy makers for using a number of unconventional methods to battle the plunging vale of the lira, instead of raising interest rates.

Başçı has been defending the Bank’s policies by stressing that it is aiming to be predictable and tight, rather than aggressively pressuring the currency through interest hikes.