Central Bank Governor Ağbal's inflation forecast unrealistic: Expert

Turkey's Central Bank on Jan. 28 projected an inflation rate of 9.4 percent for 2021, 7 percent for 2022 and 5 percent for 2023. Economist and columnist Uğur Civelek deemed the bank's inflation target “very ambitious,” saying: “They want to send out a message that they will stay tight but then they turn a blind eye to so many things and to be honest I think that even the markets do not really believe what they are saying.”

A customer is seen doing grocery shopping at a supermarket in Istanbul.

K. Murat Yıldız / Duvar English

The Central Bank of the Republic of Turkey (CBRT) Governor Naci Ağbal has renewed his pledge to keep monetary policy tight and to further tighten if necessary in order to reach the official 5% annual inflation target by the end of 2023.

“The CBRT will implement a full-fledged inflation targeting strategy” in order to defend the Lira and bring inflation back into single digits, Ağbal said in a videoconference on Jan. 28, while presenting the bank's first quarterly inflation report.

High inflation and especially food inflation have become a major problem in the country. According to the oft-questioned official state statistics, the annual food inflation as of January 2021 stands at over 20 percent, with the price of eggs, tomatoes, and sunflower oil increased over 50 percent while several food products prices doubled.

According to a study announced earlier this month by the Kadir Has University, nearly 35 percent of Turks said either economic hardship, unemployment, or the high cost of living was the main problem they faced.

High inflation is not only a problem for the average citizen. Earlier this week the Turkish Industry and Business Association (TÜSİAD), the Union of Chambers and Commodity Exchanges of Turkey (TOBB), the Independent Industrialists and Businessmen Association (MÜSİAD), and the Turkey Tradesmen and Artisans Federation (TESK) in a joint statement urged for price stability, noting that they were “closely following the reform agenda led by President Recep Tayyip Erdoğan and supporting the primary goal of fighting inflation,” although the president still insists that high interest rates are what is causing such inflation.

Structural reforms needed

“You cannot achieve stability with monetary policy alone, as it is not only a monetary issue. It is part of the problem, but the deeply rooted problems in agriculture and production also have to be addressed; the long-promised structural reforms must materialize,” noted economist Evren Devrim Zelyut on his popular YouTube channel while pointing out the decrease in food production, increase in population, and hardships farmers are facing.

The message was about interest rates

“Their statement was 'I believe Mr. Ağbal’s statement that they will not cut interest rates at least in the near future. They aim to bring in large amount of money,'" economist and columnist Hayri Kozanoğlu told Duvar English.

“They're trying to convince local investors to quit foreign currencies and invest in the Lira. This doesn't seem possible in the short term, but they think that even a limited shift would ease the pressure on currency and strengthen the reserves of the central bank,” he added.

Inflation target unrealistic

"The state's target inflation rate is very ambitious at best. They want to send out a message that they will stay tight, but then turn a blind eye to so many things. I think the markets do not even believe what they say,” economist and columnist Uğur Civelek told Duvar English, adding that “the possibility of meeting the official 2021 inflation target of 9.4 is only 20 to 30 percent.”

President Erdoğan took a step back

“Foreign media outlets and analysts have to support the current policies even if they do not believe them. This is also a political issue. International markets support this new team of policymakers because it shows a desire to get along with them. They said: ‘We will increase interest rates as much as you want’, ‘we will not lock horns with you’. Even the president took a step back” he added.

Troubled times globally

Regarding the state of the global economy Civelek says, “These are troubled times and the pandemic has contributed to it. Problems in the Turkish economy can have a major effect on other economies and even speed up a global crisis. Global markets and economies are very vulnerable; therefore, no one can openly talk about how bad the situation is.“

‘Let’s work together’

As far as a strategy, he believes that President Erdoğan will enact the reforms he promised and that he will drop his position on interest rates. "By doing this they are sending a message to foreign investors which says ‘let’s work together’. Given the current global adverse financial conditions markets and foreign media outlets experts have no chance but to play along.”

“They will support the policymakers and work with them to convince local investors to drop foreign currencies so that both sides will make a profit in the end. Yet, until now Turkish investors did not believe this,” he added.

Fox and crow

Civelek concluded with an analogy saying, “Like in the fox and crow fable by Aesop, foreign markets and our economic policymakers are telling the Turkish investors that they have a nice voice in order to get their savings.”