Central Bank of Turkey chasing pipe dreams

Turkey’s central bank will monitor risks related to the foreign exchange market and do what is necessary to ensure an inflation target of 5 percent, it announced in its policy framework published on Wednesday.


The bank said that the main goal for 2022 is to ensure price stability and achieve the medium-term inflation target of 5 percent jointly set with the government.


There was market little reaction to the central bank’s 2022 policy document, in which it said it will monitor risks related to the foreign exchange market and do what is necessary to ensure it runs smoothly, commented CNBC.com.



Annual inflation is forecast to have hit 30.6% in December, a Reuters poll found, breaching the 30% level for the first time since May 2003 – six months after Erdogan’s AK Party first came to power.


According to traders’ calculations, the central bank’s net forex reserves, excluding swaps, fell some $8 billion last week, with most of the fall in the first two days of the week. They were down $17-$18 billion as of last Friday since the start of the month, when the bank began its direct interventions.


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Data on savers subscribing to the FX protected TL deposit scheme is sketchy, Economy minister Mr Nurettin Nebati mentioned that in its first week, the program attracted less than $6 bn.


According to opposition daily Cumhuriyet, the Erdogan administration aims at a policy rate of 9%, which would mean another 500 basis point of rate cuts by CBRT.


The monetary loosening will take place as Fed and a large number or Developing Country Central Banks are raising rates or tightening policy via other instruments.


The yield on 10-year government bonds has climbed more 7 percentage points since the central bank began slashing rates in September. It was at a record high of 24.9% on Wednesday.


Analysts have dismissed the central bank’s latest guidance — which goes against mainstream economic thinking — as unworkable and say unorthodox measures to boost lira demand can’t offer more than temporary relief.


“Turkey’s attempt to lower inflation from more than 20% to 5% while cutting monetary-policy rates aggressively is doomed to fail,” Per Hammarlund, the chief emerging-markets strategist at Skandinaviska Enskilda Banken AB in Stockholm. “The Turkish authorities cannot have their cake and eat it, too.”


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.