Central Bank Governor Kavcioglu announced that the year-end inflation forecast was raised from 60.4% to 65.2%. Stating that inflation is expected to peak around 85%, Kavcioglu said, “You will see a lot of decline in inflation after November.” Kavcioglu noted that with the stability in the exchange rate, the Currency Protected Deposit will be concluded somehow.
Central Bank Governor Sahap Kavcioglu announced the last inflation report of the year.
The Central Bank raised its year-end inflation forecast to 65.2 percent. In the previous report, the estimate was 60.4 percent.
2023 FORECAST IS 22.3%
The Central Bank raised its forecast for the end of 2023 from 19.2% to 22.3%. The 2024 forecast was set at 8.8%.
“WE WILL SEE A DECLINE AFTER NOVEMBER”
Kavcioglu said that the graph showing the Center’s inflation forecasts shows that it can peak around 85% in the fall. Kavcioglu said, “You will see a lot of decline in inflation after November.”
Highlights from Kavcioglu’s statements:
Despite the major supply shocks, domestic economic activity continues uninterruptedly and in a sustainable manner.
Indicators for the second half of the year point out that exports maintained their high levels and the investment trend remained strong.
“LIMITED SLOWING SIGN IN THE THIRD QUARTER”
Growth projections for 2023 have been revised down significantly on a global scale compared to the previous reporting period.
Leading indicators since the beginning of July point to a limited slowdown in growth in the third quarter due to the weakening foreign demand.
“IMPROVEMENT CONTINUED IN THE CURRENT BALANCE”
We continue to monitor the repercussions of the structural transformation on the current account balance. The improvement in the current account balance continued in the second quarter.
At the end of this process, in which energy costs have risen at an extraordinary level on a global scale, with the normalization of energy prices, our country will achieve an external balance, in which it has a current account surplus while growing.
“DOWN-SIDE RISKS ON EXPORTS INCREASED”
Downside risks on exports increased compared to the previous reporting period.
As of August, the share of investment and export loans in total commercial loans exceeded 28 percent, reaching the highest level of the last 20 years.
Leading indicators for the third quarter of the year point to a more moderate course in demand conditions compared to the previous quarter. Investment trends remain strong.
We think that in order to maintain the momentum we have achieved in industrial production and the increase in employment, financial conditions should be supportive, especially through the cost of financing.
Thanks to the effectiveness of the macroprudential measures we implemented, we observed changes in the loan composition in line with our targeted loan policy.
“THE COMMERCIAL RATIO OF CONSUMER LOANS DECREASED”
After the macroprudential regulations introduced for loan interest rates, we see that monetary transfer was supported and TL commercial loan rates decreased to around 10 points.
While the ratio of consumer loans to commercial loans decreased, the weight of investment and export loans in commercial loans increased significantly.
Within the framework of our liraization strategy, we attach importance to increasing the share of TL in the passive composition of the banking sector.
“RESPONSE WITH INCREASED INTEREST IS NOT EFFECTIVE”
As the Central Bank, we consider that it will not be effective to respond to these supply-induced cost pressures, which are beyond the control of economic policies, with interest rate hikes.
We can reduce inflation by supporting production and increasing our production power.
We anticipate that the TL share will increase even more in the coming period. Therefore, by contributing to the stability in exchange rates through this channel, we also control an important factor that feeds inflation.
Expectations and exchange rate stability must be compatible with the disinflation process in order for inflation to decline faster.
“WE WILL NOT ALLOW AN UNHEALTHY PRICE TO OCCUR”
We will not allow any deterioration in the pricing behavior of our companies and unhealthy price formations. As a result, we will ensure that expectations and exchange rate stability support the disinflation.
We are patiently and decisively implementing a program that will reduce inflation not for a while, but permanently and completely.
Bond and commercial loan interest rates decreased significantly with the implementations we made. Credit developments were consistent with our targeted credit policies.
“KKM WILL RESULT WITH THE STABILITY IN THE EXCHANGE”
The Currency Protected Deposit system is successful, and there is no significant resource from the Central Bank. You will clearly see all items on our year-end balance sheet. There is nothing hidden or hidden. With the stability in the exchange rate, we will go to the point where the KKM will somehow end.
Not only the policy rate, but also all other rates converged to the policy rate, reaching the lowest level of the last 5 years. At the point where the exchange rate stabilizes and the interest rates decrease, there will be a spontaneous exit from the KKM.
It is not correct to make a prediction about the interest rate. Future decisions and developments are determined by the market.
“WE CAN’T CONSIDER OURSELVES SUCCESSFUL IN INFLATION”
We cannot consider ourselves very successful in inflation, I hope the decisions we take will make us successful in a short time. If there is inflation, there is a problem, we will see results in inflation in a short time.
Source: NTV / Translated by Irem Yildiz