The Central Bank in Ankara Tightens Monetary Policy

Turkey’s new central bank chief, Hafize Gaye Erkan, has vowed to continue to take “gradual and decisive” steps to slow price growth, even as she estimated that inflation would rise to around 60 percent by the end of the year.

At her first major media conference since taking office in June, she said that the fall in the value of the lira this year, the sharp rise in food prices, and large increases in the minimum wage would fuel price growth, reports the Financial Times.

The central bank has more than doubled interest rates in the past two months. It also used other methods to tighten monetary policy in a remarkable departure from the lax policies of Turkish President Recep Tayyip Erdogan’s government that triggered the economic crisis.

Erkan stated that this year’s massive stimulus measures, ahead of the presidential elections in May, led to major imbalances in the Turkish economy, including very large imports of consumer goods that led to a record budget deficit in the first five months of the current year.

Independent analysts say Turkey’s policymakers need to do more to combat inflation, which was 38.2 percent in June after peaking at more than 85 percent in October. Large increases in gasoline taxes and VAT recently became a part of a tighter fiscal policy. A sharp increase in the central bank’s inflation forecast is a positive signal to investors.

Free Gas Brought Down Inflation in Turkey

Consumer prices rose 39.6 percent year-on-year in May, the lowest annual pace since December 2021 and down from 43.7 percent in April. The Turkish Statistical Institute announced that it will use the “zero price” method for May in calculating the Consumer Price Index (CPI), reports Reuters.

Before the presidential elections, the government promised to provide free gas in May and 25 cubic meters of gas per month for the next year. The move is estimated to cost the government about $1.89 billion.