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Turkish central bank to hold rates, Erdoğan vows to lower inflation

07:02 08 April 2021 Author :  

President Recep Tayyip Erdoğan Wednesday reiterated Turkey's determination to bring inflation down to single digits, a week before the Central Bank of the Republic of Turkey (CBRT) holds the first policy meeting under its new governor.

“We are determined to bring inflation, which has recently accelerated, down to single digits,” Erdoğan told lawmakers from his ruling Justice and Development Party (AK Party) in Parliament.

Long an issue for the economy, the annual inflation edged higher in March to above 16%, while producer prices surged beyond 31%.

Inflation is expected to peak at as high as 18% in April before dipping afterward.

Erdoğan also said they sought lower borrowing costs.

“Hopefully, by bringing interest rates down to single digits, we will also lessen their burden on the budget,” the president noted.

Since taking the CBRT's helm on March 20, Şahap Kavcıoğlu has said tight monetary policy is needed for now, given high inflation.

Kavcıoğlu replaced Naci Ağbal who was dismissed two days after the central bank hiked its benchmark policy rate – the one-week repo rate – by higher-than-expected 200 basis points to 19%.

During his four-month term, Ağbal raised the policy rate by 875 basis points and expected inflation to hit a 5% target by the end of 2023.

Kavcıoğlu has said the bank remains strongly committed to the target.

New governor’s first policy meeting

The central bank is expected to hold its benchmark policy rate steady at Kavcıoğlu’s first Monetary Policy Committee (MPC) meeting on April 15, initial polls predicted Wednesday.

Eleven of 12 participants in a Reuters poll expect the bank to hold steady at 19%. One economist predicted a cut to 18.50%.

Kavcioğlu has pledged to keep the policy rate above inflation until it was clearly on a permanent downward trajectory.

He also dismissed “prejudiced” expectations of an early rate cut in April or the following months.

The Reuters poll showed the first rate cut is expected in the second or third quarter.

By year-end, Turkey’s policy rate is expected to stand at 15%, according to the poll, with seven forecasts ranging between 12% and 17%. Only one poll respondent expected a rate hike this year.

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