CBRT Governor Fatih Karahan's message on 'interest rates' and 'inflation': 'It is too early to draw conclusions'

CBRT Governor Fatih Karahan made statements regarding the economic agenda.

According to a report by Beril Akman from Bloomberg, Fatih Karahan stated that the steps to be taken regarding the policy rate must be adjusted to reach inflation targets for 2025 and beyond.

Regarding the real appreciation of the lira, Central Bank Governor Karahan said, "We are not engineering a real appreciation of the lira. This is more of a direct consequence of this policy where interest rates are high."

IMPORTS HAVE DECREASED SIGNIFICANTLY

Stating that monetary policy has reduced domestic demand and anchored inflation expectations, Karahan pointed out that both have significantly decreased imports. Although appreciation in the real exchange rate makes exports more expensive, according to Karahan, its effect on the current account deficit is positive because it anchors inflation expectations.

"WE WILL CONTINUE TO ACCUMULATE RESERVES"

Karahan stated, “We need to strike a balance between improving our reserve position and achieving our main goal of disinflation. Disinflation requires avoiding excess liquidity and the fragility created by capital flows. We have managed these trade-offs well, and the fact that regulations were not loosened has helped us.”

Pointing to the necessity of further increasing reserves, Karahan said that the main goal is to achieve disinflation in line with their objectives. Karahan assessed, “We will continue to prioritize price stability and accumulate reserves to the extent that market conditions allow.”

Karahan emphasized that the CBRT would want to reduce its foreign exchange liabilities in the future and that deposit agreements made with foreign central banks could be reviewed.

TOO EARLY TO DRAW CONCLUSIONS ON INFLATION

According to CBRT data, households and firms diverge from markets in their 12-month inflation expectations. Karahan said, "We want to see a clearer improvement in household and firm expectations. This way, we can be a bit more comfortable that inflation expectations will support the disinflation process."

Karahan stated that although the June inflation data came in lower than economists' expectations, it is “too early” to conclude that this decline is significant and permanent.

News Source: 12punto