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Turkey’s central bank chief says fears of interest rate cut 'unjustified'

Turkey’s central bank chief says fears of interest rate cut 'unjustified'

Bank to continue setting policy rate above realized, expected inflation throughout disinflation process.
03.06.2021 - 12:47

Turkey's Central Bank Governor Şahap Kavcıoğlu said Wednesday that worries over an early interest rate cut are unjustified, noting that until strong indicators point to a permanent decline in inflation, the bank will continue to set the policy rate at a level above the realized and expected inflation.

Kavcıoğlu made a presentation within the scope of investor meetings held via videoconference as part of the central bank’s communication strategy.

"The significant decrease in the forecast path of the April Inflation Report is expected to be at the end of the third quarter and the beginning of the fourth quarter," he said, underlining that “this outlook should be interpreted together with our determination to keep the policy rate above inflation throughout the disinflation process."

 

Unjustified expectations of premature easing in the markets should completely disappear, he noted.

He also pointed out that the components of growth in the first quarter are in line with the outlook in the April Inflation Report, adding economic activity continues to be strong and above the trend.

"We expect a strong upward trend in exports, a significant decline in gold imports and a slowdown in retail loans to support an improvement in the external balance," Kavcıoğlu said.

"The positive developments regarding vaccination [against the coronavirus] in the last period will contribute significantly to the normalization of economic activity and the ongoing improvement in the current account balance in sectors that were virus-hit, especially in tourism."


He also said the Monetary and Exchange Rate Policy Text is a roadmap for the policies and communication strategy the bank will implement in 2021.

"As in the first two quarters of the year, we will strictly adhere to this roadmap from now on," he concluded.

Turkey's economy expanded 7% year-on-year in the first quarter of 2021 amid economic fallout from the coronavirus pandemic.