Turkey’s Central Banker to Weigh Up Inflation After Lira Slump
A worker counts out Turkish lira banknotes for a customer at a currency exchange bureau in Istanbul. (Photographer: Nicole Tung/Bloomberg)

Turkey’s Central Banker to Weigh Up Inflation After Lira Slump


Turkey’s new central bank Governor Sahap Kavcioglu is expected to raise inflation forecasts on Thursday after his appointment unleashed a slide in the lira, exposing his limited room to deliver interest-rate cuts sought by the president.

In his first public policy presentation, Kavcioglu will update the bank’s base-case scenario for prices through the rest of 2021 and the following two years, and answer questions from economists and the media.

Enver Erkan, chief economist at Istanbul-based Tera Yatirim, said “a serious upward revision is needed” as the current inflation estimate of 9.4% at year-end had “lost touch with reality.” The governor’s comments could reveal the extent of future monetary easing, Erkan said, and a forecast below 14% for this year “may be seen as dovish.” Inflation was 16.2% in March.

Turkey’s Central Banker to Weigh Up Inflation After Lira Slump

Kavcioglu was appointed last month by President Recep Tayyip Erdogan, who breaks with economic orthodoxy in believing higher interest rates spur rather than curb inflation. The Turkish leader had sacked Naci Agbal, brought in as governor months earlier to steady the currency, after he’d delivered a 200-basis-points hike in the benchmark.

That increase made Turkey’s key rate adjusted for inflation one of the world’s highest at 19%, and was criticized by Kavcioglu, a professor of banking, as a threat to economic growth.

What Our Economists Say:

“The unexpected firing of Naci Agbal as central bank governor on March 22 has turned sentiment against the lira and led to a sharp depreciation of the currency.”

--Ziad Daoud, Bloomberg Economics. Read more: Governor’s Dismissal Was a Turning Point for Turkish Lira

CBRT SurveyCBRT ProjectionOfficial TargetBloomberg Survey
Year-end 202113.1%9.4%5%14.3%
Year-end 2022N/A7%5%10.5%

The new governor left the one-week repo unchanged in his first monetary policy decision this month, but removed a pledge to deliver additional tightening. In a summary, the central bank said the benchmark would be kept above the rate of consumer inflation until its 5% target is reached.

Erdogan said the government remained determined to both reduce inflation and cut interest rates to single digits.

The lira has weakened more than 11% against the dollar since Kavcioglu took over at the bank.

©2021 Bloomberg L.P.

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