Turkey’s central bank director Agbal says there will be no rate cuts for a long time this year By Reuters


4/4 © Reuters. Interview with the Governor of Turkey’s central bank, Naci Agbal, in Istanbul 2/4

By Orhan Coskun, Nevzat Devranoglu and Jonathan Spicer ISTANBUL (Reuters) – New Governor Naci Agbal does not expect Turkey’s central bank to start considering cutting interest rates by 17% until much later this year, given upward pressure. on already high inflation, and rate hikes are still a possibility, he told Reuters. In his first interview since taking the reins three months ago, Agbal said the central bank intends to get ahead of the market, including a quick rate hike if there is any sign that inflation, now 15%, could rise. more than expected. His comments, including the disclosure that Turkey is no longer seeking currency swap lines with foreign counterparties, could reinforce a growing view among investors that the bank is in no rush to begin easing policy despite requests for lower rates for Turkish President Tayyip Erdogan. “It does not seem possible to put interest rate cuts on the agenda for long this year,” Agbal said, noting that consumer prices rise for a few months before slowly falling to the bank’s forecast of 9.4% a year. -end. “If any new data we find indicates a risk of deviating from the target medium-term trajectory in inflation expectations and price behavior, we will adjust further in advance,” he said at the bank’s new headquarters in Istanbul. Erdogan named Agbal as part of a surprising leadership overhaul a day after the lira hit a record low in early November. The Turkish president also promised a new market-friendly economic era. Since then, the central bank has raised rates to 17% from 10.25% to combat inflation that has stalled in double digits for most of the last three years, giving Turkey more monetary policy. strict of any major developed or emerging market economy. After years of avoiding Turkish assets, investors have started to back off, with about $ 15 billion in foreign inflows since November, causing the lira to rise 15% and drastically lower market risk indicators. (GRAPH: Turkey is Alone in a World of Easy Money – https://graphics.reuters.com/TURKEY-CENBANK/jznvnmamrpl/chart.png) ERDOGAN’S SHADOW Concerns persist, however, about whether Agbal can repair credibility ragged bank and rebuild its Foreign exchange reserves, seen as a country’s buffer against financial crises, which in net terms fell last month to a quarter of their levels in early 2020 due to costly state interventions in markets currency. Erdogan, who fired the last two heads of central banks over political disagreements, has in recent weeks repeated his unorthodox view that high and tight interest rates cause inflation. Some analysts doubt that Agbal can keep its hardline promise. Overall, they expect the bank to start cutting borrowing costs from the middle of the year and say its inflation forecasts are too optimistic. Agbal, a former finance minister close to Erdogan, said past cycles, including in 2019, when rates fell 24% after a currency crisis, expose the economic costs of easing policy too early. This time, he said, a “strong deflationary bias” will guide the bank’s approach. It will manage expectations “by getting ahead of the markets,” he added. “As the market confirms this determination of ours, inflation expectations” will fall, Agbal told Reuters. “We expect capital inflows … to continue,” especially with longer-term portfolio investments, he added. Agbal said the bank would patiently rebuild its depleted foreign exchange reserves through auctions, and suspended a search for foreign exchange lines that led it to reach Washington, London, Tokyo and other capitals last year. “Our strategy to increase reserves does not include swap agreements with the central banks of other countries,” he said. (GRAPH: Turkey’s Double Digit Inflation Advances – https://graphics.reuters.com/TURKEY-ECONOMY/CENBANK/oakpennayvr/chart.png) SUSTAINING ALONE Most countries have cut borrowing costs to smooth the hit of the coronavirus pandemic. But in Turkey, the central bank has risen 675 basis points in three months and said it will do more if necessary. It predicts that it will take until the end of 2023 for inflation to reach an official target of 5% for the first time since 2011. Significantly higher interest rates have hit businesses and households at the same time that food inflation has soared more than 20% . Skeptical Turks have a record $ 236 billion in hard currency to hedge against inflation and the lira, which has lost more than half its value since the 2018 crisis, including 20% ​​last year alone, which raises import costs. “Rebuilding the credibility of the policy will take time (as) Turkey has a long history of exceeding inflation targets and credit-driven macroeconomic volatility,” Fitch Ratings said this week. A rollercoaster of recession, recovery and pandemic has seen the $ 760 billion economy averaging around 1% growth since 2018, down from the 5% levels that had defined Erdogan’s nearly two decades in the power. Polls show that its popularity falls due to rising cost of living and loss of income. Agbal said the economy has lost some pace recently, but signs that Turks are shifting toward lira assets suggest a reversal in dollarization could take place. “We work day and night … to achieve lasting price stability,” he said. “We know that we are in a difficult period.”