Turkish Cenbank Inflation Forecasts Unchanged, Vows Tight Policy

Business and residential buildings are seen in Sisli district, in Istanbul, Türkiye, July 26, 2024. REUTERS/Dilara Senkaya
Business and residential buildings are seen in Sisli district, in Istanbul, Türkiye, July 26, 2024. REUTERS/Dilara Senkaya
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Turkish Cenbank Inflation Forecasts Unchanged, Vows Tight Policy

Business and residential buildings are seen in Sisli district, in Istanbul, Türkiye, July 26, 2024. REUTERS/Dilara Senkaya
Business and residential buildings are seen in Sisli district, in Istanbul, Türkiye, July 26, 2024. REUTERS/Dilara Senkaya

The Turkish Central Bank has left its mid-point inflation forecasts for end-2024 and end-2025 unchanged at 38% and 14% respectively, Governor Fatih Karahan said on Thursday, vowing to maintain a tight monetary policy stance.
In a briefing on the bank's latest quarterly inflation report, Karahan said that inflation was projected to fall to 9% by the end of 2026.
"We will decisively maintain our tight monetary policy stance until price stability is achieved," he said. "By maintaining the cautious stance in monetary policy, we envisage that inflation will decline steadily in the rest of the year."
Turkish annual consumer price inflation eased to 61.78% in July, accelerating what is expected to be a sustained slide. Economists see end-year inflation around 42%, Reuters reported.
The bank has raised its policy rate by 4,150 basis points since June last year, but has kept it unchanged at 50% since March to allow the tightening to have an impact.
Karahan said a tight monetary policy stance could be maintained even when the time comes for rate cuts.
"We need to maintain the tight stance for a long time. This does not mean that interest rates will never be cut. A tight stance can be maintained with rate cuts," he said.
The lira was largely flat at 33.5225 to the dollar after his comments, having touched a record low of 33.6700 earlier this week.
EXPECTATIONS CRITICAL
Karahan said the bank's "decisive" monetary policy stance would support the downtrend in monthly underlying inflation amid rebalancing in domestic demand, real appreciation of the lira and the improvement in inflation expectations.
"The convergence of inflation expectations to the forecast range is of critical importance for disinflation," he added.
In its last quarterly report in May, the bank nudged up its year-end inflation forecast to 38% from a previous 36% due to an unexpectedly large rise in the first four months of the year.
The tightening cycle over the last year marked a stark turnaround after years of unorthodox economic policy under President Recep Tayyip Erdogan, who in the past urged low rates despite rising prices.
On July 26, Deputy Governor Cevdet Akcay told Reuters that the bank was not even considering a rate-cutting cycle at this time as easing too early could reignite inflation and extend the pain for an economy on the verge of disinflation.
As it seeks to cool the economy, the bank is also rebuilding foreign reserves which had plunged under previous economic programs that had sought to stabilize the lira.



Dollar Recovers as Trump Proposes Canada, Mexico Tariffs

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
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Dollar Recovers as Trump Proposes Canada, Mexico Tariffs

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The US dollar rose on Tuesday, recovering from its biggest daily percentage drop in 14 months after President Donald Trump suggested the US could impose tariffs on Canada and Mexico by Feb. 1, countering expectations he might take a gradual approach.

Trump told reporters he was thinking about implementing tariffs of around 25% on imports from Canada and Mexico at the start of February over illegal immigrants and fentanyl crossing into the country. He also raised the possibility of a universal tariff but said the US was "not ready" for that yet.

The dollar fell sharply on Monday after Trump's first day in office passed with no specific plans on tariffs and officials said any new taxes would be imposed in a measured way, a major relief for trade-exposed currencies, Reuters reported.

"What you're seeing here, too, is just how crowded long dollar positioning is, so all you need is some ambiguity on the tariff front, and you get these kind of moves," said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.

"The bigger outside moves are going to come now if we see some deals happening, some stuff being negotiated and some of this fear getting priced out. The dollar positioning is long enough that you're going to see some smart people trying to bet on a turn."

The dollar index, which measures the dollar against a basket of currencies, rose 0.32% to 108.33 after dropping 1.24% on Monday. It was up as much as 0.68% earlier in the session.

The euro was down 0.22% at $1.0391. The EU is also seen as a likely target for Trump's tariff policies. Sterling weakened 0.26% to $1.2291.

Talking to reporters on Monday, Trump said he would remedy the trade imbalance either through tariffs or by Europe buying more US oil and gas.

A subsequent trade memo directed agencies to investigate and remedy persistent trade deficits. Analysts at Jefferies said the memo should be seen as a "blueprint for what to expect next on tariffs," and April 1 will be an important date as the agency reports are due by that date.

The Canadian dollar weakened 0.8% versus the greenback to C$1.44 per dollar while the Mexican peso was down 0.86% versus the dollar at 20.698.

The inauguration speech focused on emergencies in immigration and energy and a more expansionist foreign policy, including a pledge to take back the Panama Canal.

In his first term in office, Trump had a history of announcing imminent plans for policy proposals, including on healthcare and infrastructure, only for nothing to take shape.

Against the Japanese yen, the dollar weakened 0.11% to 155.42.

The yen has strengthened against the dollar in three of the last four sessions, supported by growing expectations the Bank of Japan will raise interest rates on Friday.

Japan's top currency diplomat Atsushi Mimura said on Tuesday at a Reuters NEXT Newsmaker event that a weak yen would increase inflation by boosting import costs. Mimura said the government and the central bank were communicating closely every day through various channels.

Markets are pricing an 86.2% chance of a quarter-point increase.

The dollar strengthened 0.23% against the offshore Chinese yuan to 7.278. Trump has threatened China with tariffs of up to 60% but did not detail any plans on Monday.

Beijing later set a stronger fix for the yuan, suggesting it was still inclined to take steps to prop up the currency.