ANKARA
The Turkish Central Bank’s monetary and exchange rate policies for 2021 are being welcomed by economists, who said the bank's anti-inflationary narrative gave positive messages to the market, showing a determined return to orthodox policies.
In his first press conference, Naci Agbal, who was appointed Central Bank governor on Nov. 7, said on Wednesday that the risk of upward inflation will require a tight and decisive monetary policy stance in 2021, adding that it will be tightened if needed.
"Really encouraging and orthodox messaging from Agbal and the Central Bank," stressed Timothy Ash, a senior emerging market strategist at London-based BlueBay Asset Management, adding that he hopes Agbal has the latitude to do his job to his full potential.
He added the Turkish lira returning to a level of 7.8 liras to the dollar shows the market’s positive sentiment.
Sharing similar views, Phoenix Kalen, emerging markets strategy director at the Paris-based Societe Generale, told Anadolu Agency on Thursday:
"These comments are consistent with our view that, compelled by pragmatism, the Turkish authorities are committed in their strategic pivot back toward policy orthodoxy.
“We stay short dollar-lira and short euro-lira as we believe that efforts to bolster retail and foreign investor confidence will succeed in gradually reversing the trend in dollarization.”
Bank's anti-inflationary narrative
The bank’s monetary strategy report should be welcomed for several reasons, according to Álvaro Ortiz Vidal-Abarca, BBVA research chief economist for Turkey.
"First, it maintains the anti-inflationary narrative, which has been a more clear guidance since the new governor took position," he noted.
Second, it clearly enhances the communication policy, which will be very useful for guiding markets, he added.
The bank will take a gradual approach by sticking to the inflation forecasts in the latest inflation report (9.4%) but with the medium-term goal remaining at 5%.
"It is a recognition and a commitment to a more credible but challenging target next year," he said, as hitting inflation "below two digits will not be easy and will require tight monetary policy."
Another important issue, he added, is the clarification about the normalization of policy.
Their main tool will be the one-week repo, as the corridor and late liquidity window will be used only for temporary liquidity tensions but not as monetary policy tools.
According to Vidal-Abarca, this is a long-run strategy, and for now the bank should concentrate on doing its job.
"It is a matter of perseverance and delivery. A kind of ‘Just do it’ policy. If they persist, results will start to pay off very soon," he said.
Government's inflation target
Turkey's year-end inflation rate is expected to hit 12.1% for 2020, according to the bank, while under Turkey’s new economic program for 2021-2023, the country’s inflation rate target for this year is 10.5%.
The bank forecasts annual inflation for next year to hit 9.4% before stabilizing to around 5% in the medium term.
Turkey posted a 14.03% annual hike in consumer prices in November, according to TurkStat, the country’s statistical authority.
In a move hailed by markets, Turkey's Central Bank last month raised its one-week repo rate – also known as its policy rate – from 10.25% to 15%, tightening its monetary policy to ensure price stability.
The move also came amid changes in Turkey’s economic administration and pledges of reform.
