Türkiye’s new central bank chief Hafize Gaye Erkan held her first news conference on Thursday since her appointment in June, as she presented the bank’s quarterly inflation report.
The annual consumer inflation is projected to hit 58% this year, revised 35.7 points up from the previous forecast, Governor Hafize Gaye Erkan told a meeting
The end-2024 forecast was raised to 33% from the previous projection of 8.8% and the end-2025 forecast to 15% from 5%, Erkan noted.
The upward revisions were due to Turkish lira-denominated import prices, output gap, food prices, administered prices and unit labor cost and forecast deviation, and change in forecasting approach.
Central bank’s forecasts
“Compared to the previous reporting period, developments in lira-denominated import prices pushed our year-end inflation forecasts for 2023 and 2024 up by 7.5 and 8.3 points, respectively. This was mainly driven by exchange rate developments,” Erkan explained.
Food prices added 8.5 percentage points for 2023, and 6.0 percentage points for 2024 to the bank’s forecasts, she stressed.
“Changes made to other economic policies, such as transfers to households, taxes, wages and administered price adjustments, raised the end-2023 inflation forecast by 7.5 points and end-2024 inflation forecast up by 3.6 points.”
The stronger-than-expected domestic demand pushed the year-end inflation forecasts up by 1.3 points for 2023 and by 0.4 points for 2024, Erkan noted.
“Lastly, the effects of forecast deviations and the change in forecasting approach added 10.9 and 5.9 points to our year-end forecasts for 2023 and 2024, respectively,” she said.
While gradually raising the policy rate, the bank is committed to boosting the functionality of market mechanisms through the simplification process to enable market rates to become more aligned with inflation expectations, the governor said.
Stabilizing steps will be taken
Erkan underlined that the bank will continue to take stabilizing steps that target inflation through selective credit tightening and aims to ensure stable development in the Turkish lira liquidity without generating excessiveness in exchange rates and domestic demand.
“The Central Bank will make decisions based entirely on data and in complete coordination in line with the principles of confidence, stability and transparency,” she said.