Following the end of CBRT Governor Karahan’s presentation, the question and answer session started.
Do you think that there are additional steps to be taken in fiscal policy in order to achieve the desired level of inflation?
We want to reduce inflation by stabilising demand. A savings detail for expenditures is being worked on.
Can we reach these levels with the current monetary tightness? Will there be an additional monetary tightening?
When we look at the data as of the fourth quarter, the demand indicators at that time pointed out that the balancing in demand was progressing in a healthy way. Things were going well. We thought we would reach our 36 target. Demand was more balanced, stronger, and there was an acceleration. We had verbal guidance as of February. As of March, its composition was worse than our forecast. Demand indicators were also revised by TURKSTAT, and the outlook revealed that demand was more resilient. There has been a serious tightening, and we think that it will reflect positively on demand. In the first 4 months, nearly 4 points of additional inflation was realised. There is a deterioration of nearly 4 points. It does not seem easy to compensate this completely even with additional tightening. The update from 36 to 38 per cent is entirely for this reason. 36 per cent is still within the band. As we have done before, we are ready to make additional tightening in case of deterioration in the inflation outlook.
Can the Central Bank afford a hard landing? Will you tighten further if pricing behaviour does not improve as we expect?
We are ready to do whatever it takes. When we look at the 2023 data, I have shown that growth is entirely driven by domestic demand. We anticipate a stabilisation in demand by tightening monetary policy. At the end of the process, we will see that demand will balance, pricing behaviour will normalise and inflation will come down. Growth will have a healthier composition.
Do you have any other plans instead of short-term solutions such as warehouses?
Recently, there has been a serious demand for TL in the name of liquidity management, and as we accumulated foreign currency, we tried to go by closing swaps. We immediately opened warehouse auctions. We endeavour to be careful. We assess that this is temporary. We will continue with warehouse auctions for a while.
I would like to ask a question about the deviation from the year-end target you have set. What is your tolerance amount?
When we look at the band, the previous band was band 6, 36, while the upper band was 42. Now it has come down. While it was 38, it was 42… Part of it is the mechanical effect. Some of it is related to public finance. When we look at the futures markets, oil markets are also important.
Are increased foreign exchange purchases a preference?
We do not have a reserve target, but we want to improve our reserve position. The increasing demand for TL will increase and this will continue. There is also interest from abroad. From time to time, when there is a lot of demand, there is also an opportunity to accumulate reserves. By buying foreign currency in a way that does not disturb the formation of market conditions… If we can reduce inflation in the medium and long term, our reserve position will also improve.
What will be the MB’s clear stance on the value of the TL?
We do not have a target for the exchange rate. The supply-demand balance of foreign exchange is formed in the free market. While the rate of increase in the exchange rate decreases, it may also decrease from time to time. We do not have a target in terms of the TL. TL may strengthen within the framework of the tight monetary policy stance. Demand from both domestic and foreign residents may increase.
Will you endeavour for transparency in access to data?
It is TÜİK’s own preference. In terms of expectations management, we communicate through monetary policy. As inflation decreases, expectations will also move in a positive direction. In terms of the CCC, the total balance was USD 140 billion as of August, and it is currently USD 70 billion. The concern sector is a subject we talk about a lot. A prudent stance is always important. We anticipate that the base scenario will go somehow.
Will swaps be opened?
We are not authorised for swaps. There is a limitation on the equity of the banking sector. If the BRSA sits down and evaluates this, they will make a statement as they deem necessary. I see that it is beneficial to act in a way that does not increase fragilities too much. We do not have a reserve target.
The effect of the minimum wage increase on inflation…
The Central Bank is not in charge of the minimum wage. We are not a decision maker. There is no question of giving advice. When we make our inflation forecasts, we have to make some assumptions. Since it was rumoured that there would be a single minimum wage increase, we made this assumption.
Do you think there may be additional tightening in credit card interest rates?
Regarding credit cards, we are authorised to regulate only the maximum interest rates. We have recently made an adjustment in interest rates. The incoming data suggest that this has been quite reasonable. We closely monitor all kinds of credit developments. At this stage, I do not think that an additional measure will be needed. We made additional tightening on demand at the end of March. The data we have, credit card expenditures point to a weakening. We have field observations. We have a comprehensive team. We keep a lot of pulse. The incoming signs indicate that demand has started to stabilise.
What do you predict for May and June inflation?
We endeavour to communicate through monthly inflation. There will be a decline in the summer months due to the base effect. If there is a permanent decline, we can achieve the 2025 target. We look at various indices, not the CPI itself. In April, the B and C indices were at 3.1, and we think they will be slightly below 3 in May.
Cevdet Akçay: We do not expect inflation to exceed the upper band
CBRT Deputy Governor Cevdet Akçay also made an assessment during the inflation presentation.
The highlights of Akçay’s speech are as follows:
We started to see the effect of the tightening we made in March very quickly in terms of how demand will start to contract. We pulled it down to 38, but we do not think that we will definitely exceed the upper side of the band. We are in the worry sector. Our job is to worry.
We have no problem with the band we have given. There was a situation where a hard landing was necessary: The weakness of the transmission mechanism… What we have been trying to do for a long time is to strengthen this mechanism. We have strengthened this mechanism significantly since March.