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“Inflation could rise to 75 percent”

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“Inflation could rise to 75 percent”

But how credible is the Turkish central bank in retrospect? If it had raised interest rates earlier, the adjustment in inflation expectations and the corresponding capital inflow would probably have occurred earlier. The fact that the central bank has fired four governors within five years has also damaged its reputation. Inflation jumped from 8.5 percent in September 2019 to 83.4 percent in September 2022. Decisive action was then required to regain the confidence of the financial markets.

Also read: The difficult partner Türkiye

The central bank’s long-timid messaging has further undermined efforts to restore its credibility. In July and October, central bank chief Hafize Gaye Erkan signaled that she was unwilling to jeopardize growth for the sake of disinflation. However, the chairman of the US Federal Reserve, Jerome Powell, and the president of the European Central Bank, Christine Lagarde, made it clear that they intended to accept slower economic growth as a necessary evil to control inflation; This underpinned their commitment from the market’s perspective. It was only in November that Erkan admitted that the Turkish central bank would have to accept a higher price in order to contain inflationary pressure.

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