Turkey’s central bank is not even considering a rate-cutting cycle at this time because easing too early could reignite inflation and extend the pain for an economy on the verge of disinflation, Deputy Governor Cevdet Akçay said in an interview.
For now, he told Reuters, the bank is attempting to convince skeptical companies and households that it will keep its tight policy for as long as it takes to secure a lasting period of disinflation.
“A rate cutting cycle is not even contemplated at this point,” Akçay said in his first media interview since President Recep Tayyip Erdoğan appointed him to the post a year ago.
This is because in Turkey – where inflation is the economy’s main problem – the risk of premature policy easing and “rejuvenated inflation dynamics” is higher than the risk of waiting too long, he said.
“A rate cut is therefore not an agenda item at the moment, and will not be before a secular decline in the underlying trend of monthly inflation is observed and is accompanied by other indicators we closely follow,” Akçay added.
“A central bank’s natural tendency is to always err on the side of caution.”
The hawkish message could cool expectations that the central bank will begin easing monetary policy in the fourth quarter, with some analysts forecasting a rate cut as soon as September. Others predict it will wait until early next year.
Akçay, 63, is a key architect of Turkey’s dramatic U-turn toward a more orthodox, high-rates policy meant to vanquish years of soaring prices that emerged under Erdoğan’s previous policy of easy money to boost economic growth.
Since June of last year, the central bank has hiked rates to 50 percent and, since it last tightened in March, has pledged to remain vigilant to inflation risks. Annual inflation dipped below 72 percent last month, marking the beginning of what is expected to be a prolonged slide.
Yet even as economists predict inflation will be 30 percent in a year, a central bank survey shows Turkish households – stung by years of inflation and foreign-exchange volatility – rather see it at 71 percent, according to figures released in June.