Page 30 - bne_April 2021_20210401

30 I Cover story bne April 2021
Q&A:
Turkey’s new central bank governor Sahap Kavcioglu’s first comments
Turkey’s newly appointed central bank Governor Sahap Kavcioglu gave his first comments to the press when he answered questions posed by Bloomberg in a written reply on March 28. Extracts below:
Central Bank independence
The Central Bank is vested with instrument independence by the Law to use the monetary policy tools to reduce inflation permanently. The CBRT will continue to use the monetary policy instruments independently considering the needs
of the day.
Agbal’s 200bp hike
I do not find it appropriate to comment on previous decisions. In the Monetary Policy Committee Meeting in April, we will make our decisions as the Committee by evaluating inflation developments and all available data.
Rate Cuts on the cards?
We strictly adhere to the medium-term inflation target of 5% set jointly with the Government... When determining the monetary policy stance, we will continue to take into account the realized and expected inflation as well as global capital flows, real yields in peer countries, and the portfolio preferences of residents.
In the new period, we will continue to make our decisions with a corporate monetary policy perspective to ensure a permanent fall in inflation.
FX Reserves sufficient?
In the period ahead, the Central Bank will adhere to the floating exchange rate regime as stated in the Monetary and Exchange Rate Policy document, and exchange rates will be determined by supply and demand balance under free market conditions. We maintain our goal of boosting FX reserves for monetary policy effectiveness and financial stability.
What causes inflation and how to fight it?
We see that in addition to cyclical conditions, structural factors also have an effect on inflation. This can systematize the price changes that fall outside the domain of the Central Bank. Thus, policies that will address the factors with inherent rigidities hindering the monetary fight against inflation, such as the high and volatile course of unprocessed food prices, rigidities in prices of services and the exchange rate pass-through, gain importance.
I think that implementing structural reforms geared towards disinflation, as set out in the Economic Reform Package announced by our Government, is critical to the fight against inflation.
it started finding its feet again under Agbal. They know all too well from bitter experience that in Turkey things can change in a flash.
Strikingly, the ceaseless rounds of boom and bust that stem from Erdo- gan’s default policy of pumping up the economy with cheap money and lots of credits are beginning to undermine his political grip on the country. Unofficial polls show that Erdogan’s popularity
is fading fast as the economic misery begins to take an exacting toll on even many of his voters in the polarised country of 83mn. There are rumours of some rebellion in the ranks of the AKP as his economic incompetence becomes increasingly obvious to everyone. Some former loyalists have split away to form their own political parties.
The Turks in fact are starting to pay the bill for the horrendous economic mis- management that most stakeholders, the global markets included, were only too happy to turn a blind eye to while the short-term profits rolled in. The foreign share of Turkish equity holdings has fallen to an all-time low and bondhold- ers have fled the market.
And the country was already in a weak position before the latest train wreck. Erdogan’s son-in-law Berat Albayrak, quit as finance minister in early Novem- ber after burning through over $125bn of the country’s FX reserves in a vain attempt at propping up the exchange rate while holding interest rates down. At the same time, Turkey is running
a $36bn current account deficit that it is going to struggle to finance.
During a speech to the faithful at a party congress, Erdogan said that if the country could hold on for the holiday season to start then Turkey would earn some $30bn from recovered inbound tourism. But with a third wave of the coronavirus (COVID-19) epidemic ripping through Europe and forcing country after country into yet another lockdown, it seems highly likely that the Europeans are going to spend the summer sunning themselves on their balconies and not on Turkey’s beaches.
www.bne.eu