Turkish Central Bank sends letter of excuse to gov't on inflation rate

The Central Bank sent a letter of excuse to the government for not meeting the inflation target in 2020. In the letter sent to the Minister of Treasury and Finance, Lütfi Elvan, the factors affecting inflation previous year were explained.

Women shop at a local market in Istanbul on Jan 12.

K. Murat Yıldız / Duvar English

The Turkish Central Bank (TCMB) has sent an ‘open letter’ as it has been doing annually in accordance with Article 42 of the CBRT Law titled "Special Audit and Disclosure to Public."

The TCMB in its letter addressed to the Minister of Treasury and Finance, Lütfi Elvan stated that the annual inflation target of 5 percent was not met and resulted in 14.6 percent due to several reasons such as the increase in food prices, credit growth, dollarization and the negative effects of the COVID-19 pandemic.

Meanwhile, the Turkish Statistical Institute (TurkStat) on Feb. 4 released the Consumer Price Index (CPI) statistics for January 2021 that showed a CPI increase of 14.97 percent annually and 1.68 percent monthly in January.

The letter signed by TCMB’s Governor Naci Ağbal has been critical of his predecessors and former monetary policies as it also includes a roadmap to achieve the announced inflation target of 5 percent for 2023. Yet, “We are far from the 5 percent target in inflation" the letter admitted.


Global uncertainties and the failure of inflation goals in the country led to dollarization as local investors sought safe haven in foreign currencies and gold.

In the letter, the 40 billion US Dollars decrease of TCMB’s reserves was attributed to the “increase in capital outflows and the need for external financing.”

Yet, many experts believe and argue that the decline of the Central Bank’s reserves has been higher than announced in a time when the monetary policymakers repeatedly talk about more ‘transparency’ and ‘accountability.”

It is a common view that the Central Bank has depleted its reserves in the last two years around 140 billion US Dollars in unaccountable ways to tame foreign currencies.

Shadow Central Bank

“A shadow Central Bank has been established which consists of the three state banks. Vakıfbank, Halkbank and Ziraat Bankası. They sold foreign currencies to control the exchange rates without the knowledge of the Central Bank. For example, those banks kept the dollar around at a ‘fake exchange rate’ of 6.85 Liras for several months by doing so,” Professor Dr. Veysel Atasoy told Duvar English.

Positive aspects

The drop in petroleum prices by 34 percent and similarly in energy prices compared to the previous year were listed as positives in the letter.

Tightening in monetary policy in line with the pandemic and steps taken about price stability in August had positive effects, the letter noted. Moreover, since November, risk premium, exchange rate volatility and long-term interest rates have declined, and capital inflows have increased.

In December in line with the 2021 year-end targets, a strong monetary tightening was made, interest rates were increased. Furthermore, with official statements, this stance was strengthened. The letter noted that with this tight stance, the target of 9.4 percent is expected. However, it also warned that as risks are still there, this dedicated tight stance must continue.

6 points underlined

--Decisive implementation of the inflation targeting regime with all its elements in a simple operational framework.

--To maintain a tight and determined monetary policy stance with the priority and focus of price stability.

--To strengthen communication in line with the principles of transparency, predictability and accountability.

--Implementation of the floating exchange rate regime.

--Strengthening foreign exchange reserves and using all available instruments in a transparent manner, within a plan, under appropriate conditions when the determined strategic criteria are met.

--Considering financial stability as well as price stability.

It is imperative to maintain the strong tight monetary policy stance, the letter concluded.