Central Bank Governor Hafize Gaye Erkan makes statement on inflation

Presenting to members of parliament at the Turkish Grand National Assembly's Planning and Budget Committee, Central Bank Governor Hafize Gaye Erkan stated that monetary tightening policy and reserve accumulation are supporting exchange rate stability.

Addressing the rise in inflation, Erkan said, "The increase in oil prices and the ongoing deterioration in inflation expectations are creating additional upward pressure on inflation.

These factors indicate that inflation will hover near the upper limit of the forecast range in the inflation report by the end of the year."

Here are the highlights from Erkan's speech:

We are decisively using all our tools in line with our primary objective of price stability, and we will continue to do so. We will patiently implement a monetary policy that will increase confidence.

We are demonstrating our determination to patiently implement a monetary policy that will re-anchor expectations and increase confidence and predictability in the economy through the steps we have taken. By conducting monetary tightening in conjunction with simplification within the macroprudential framework, we aim to both strengthen the monetary transmission mechanism and ensure that the steps we take reinforce macro-financial stability.

"INDICATES THAT INFLATION WILL HOVER NEAR THE UPPER LIMIT OF THE FORECAST RANGE"

The increase in oil prices and the ongoing deterioration in inflation expectations are creating additional upward pressure on inflation. These factors indicate that inflation will hover near the upper limit of the forecast range in the inflation report by the end of the year. Wages, exchange rates, and taxes have significantly reflected on inflation. The main trend of monthly inflation began to slow down in September.

"WE SEE THAT IT SUPPORTS EXCHANGE RATE STABILITY"

Disinflation can be achieved without compromising growth. We see that the effects of our monetary tightening process and the strong trend in reserve accumulation are supporting exchange rate stability.

We are determined to establish disinflation in 2024 in line with the path in the Inflation Report by lowering the main trend with the cumulative effects of our monetary tightening steps.

There is a temporary rise in inflation. During this process, we are carefully and meticulously laying the groundwork to ensure that disinflation is achieved in a sustainable manner in 2024.

Once the disinflation process period begins, temporary adjustments in relative prices will give way to exchange rate stability, an improving current account balance, fiscal discipline, permanent strengthening in capital flows, and increasing reserves.

"WILL CONTINUE TO CONTRIBUTE TO THE RISE IN INFLATION"

Recent tax adjustments have had a short-term impact on the rise in inflation. Measures to support public revenues were announced starting in July to balance the financing needs arising from the earthquake and increasing public expenditures.

These measures include updates to administered prices as well as tax increases.

Although most of the potential impact has been reflected in prices, ongoing developments such as electricity and natural gas price hikes for the industry will continue to contribute to the rise in annual inflation through production costs.

"CREDIT CARD USAGE IS DECREASING"

The gap between personal loans and cash loans has closed, and credit card usage is decreasing.

The fact that reserves have increased while the KKM (FX-protected deposit) balance has declined indicates that the strategy of transitioning from KKM and foreign currency deposits to Turkish Lira is progressing successfully and that the desired healthy transition to the Turkish Lira has begun.

The transaction made for KKM is a payment transaction, and the Central Bank has dozens of income and expense sources like this. As you would appreciate, income statement transactions are only finalized when the balance sheet is prepared at the end of the year.