Turkey’s central bank has pledged not to deviate from its current policy mix to curb runaway inflation, hinting that President Recep Tayyip Erdoğan’s government endorses its measures, Bloomberg reported on Thursday.
The bank, which has raised its key interest rate from 8.5 percent to 35 percent since June, said in a biannual report that it agrees with Turkish “decision makers” on the need to slow price growth, which rose above 60 percent last month.
Governor Hafize Gaye Erkan’s remarks in Thursday’s Financial Stability Report underscore her efforts to convince investors that she will not be forced by the government to backtrack on her pledges for higher borrowing costs until inflation is under control. Before Erkan was appointed in June, Erdogan sacked three governors for not doing enough to keep borrowing costs low and spur economic growth.
Investor confidence in the continuation of Erkan’s tight monetary policy is crucial to Turkey’s ability to attract foreign capital back into its financial markets. In recent years, as Turkey opted for a policy of growth at all costs and lost control over consumer prices, foreign investors have almost completely abandoned Turkish bonds and reduced their exposure to equities.
“Decision makers” and other economic actors “are truly aware of and in agreement over” the need for price stability, Erkan said in the report. “We will not compromise on our aims of price and financial stability and will move with determination.”
The report states that the central bank will continue its “strong monetary tightening,” which has led to a significant slowdown in consumer loans.