Criticism of the Central Bank from Mahfi Eğilmez: Why are inflation targets not being met?
Economist Mahfi Eğilmez has explained the fundamental reasons behind the Central Bank's failure to meet its inflation targets for years. Eğilmez emphasized that interest rate cuts, insufficient fiscal policy, and a lack of public trust have led to failures in meeting inflation targets.
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Prof. Dr. Mahfi Eğilmez, one of the leading figures in the economic world, has evaluated in detail why the 5 percent inflation target set by the Central Bank of the Republic of Turkey (TCMB) has not been achieved for years. According to Eğilmez's analysis, the monetary and fiscal policies pursued in recent years are not yielding the expected results, making it impossible to reach both the targets and the forecasts.
Within the scope of monetary policy, the TCMB has long maintained an inflation targeting model. However, it has not been possible to approach the set targets except in 2009, 2010, and 2012.
Additionally, the annual inflation forecasts made within the scope of the Medium-Term Programs (OVP) also remain far from the actual figures. The table shared by Eğilmez reveals the inflation targets, OVP forecasts, actual inflation rates, and the scale of deviations over the years.
These data show that the Central Bank's policy interest rates have been insufficient to meet inflation targets or OVP forecasts. Eğilmez has transferred the data into a chart to make the table more understandable.
The chart in question clearly demonstrates that the deviations occurring particularly between September 2021 and June 2023 reached extraordinary levels. This period stands out as the time when the Central Bank lowered the policy interest rate instead of fighting inflation. Eğilmez states that he has repeatedly underlined that this approach was a major mistake.
According to the economist's assessment, the problem does not stem solely from the targets and forecasts being unrealistic. It is also emphasized that the implemented monetary policy does not run in parallel with the targets. Mahfi Eğilmez stated, "If the targets and forecasts are correct, then the TCMB is not implementing a monetary policy consistent with these targets. In the opposite case, there is no point in insisting on wrong targets for years."
The increase in the budget deficit also puts pressure on inflation. It is estimated that the budget deficit will reach 5.1 percent of GDP in 2023 and 4.7 percent in 2024. Eğilmez explained that while the earthquake disaster was effective in the deviations in 2023, this excuse is not valid for 2024.
Noting that the issue of trust in the economy is another fundamental problem, Mahfi Eğilmez underlined that realistic steps must be taken in the fight against inflation in the future, saying, "A correct target must be set, and appropriate policies must be implemented to reach this target."
In conclusion, according to Eğilmez, there are four main reasons behind the failure to meet inflation targets for years: the failure to set realistic targets, incorrect monetary policy practices, the lack of sufficient support from fiscal policy, and the erosion of public trust in economic decision-makers.