Central Bank Governor says Turkey doesn't have a target for exchange rates as US dollar's rise continues

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As the US dollar's rise against Turkey continues, Central Bank Governor Murat Uysal said that the bank does not have a target for exchange rates.

"The movements in the exchange rate are influenced by many factors. We can say that geopolitical developments and the expectations due to the pandemic stand out," he told reporters at a press conference about the latest inflation report.

Turkish lira has declined to record low levels against the US dollar over the past few days, falling to 8 against the US dollar for the first time on Monday (October 26) and to 8.23 today.

"As the Central Bank, we don't target any real or nominal exchange rate level. We are looking at the nominal and real price targeting," he said, adding that Turkish lira is currently at an "extremely invaluable point."

The inflation forecast

The Central Bank also announced today (October 28) that it raised the year-end inflation forecast for both this year and next.

Turkey's year-end inflation rate is expected to hit 12.1 percent for 2020, up from 8.9 percent in its previous report, the Central Bank Governor said.

Uysal said the figure will fluctuate between 11.1 percent and 13.1 percent through the end of the year with a 70 percent probability.

The upward revision was driven by the higher course of exchange rates, output gap, and food prices.

The bank also revised upwards annual inflation for next year to 9.4 percent from 6.2 percent before stabilizing to around 5 percent in the medium term.

The governor said the revisions are based on the assumption that there would be no second wave of the coronavirus pandemic.

Pointing out that annual consumer inflation in the third quarter stayed close to the upper limit of the forecast band presented in the bank's previous report, Uysal said: "Inflation followed a higher-than-envisaged path as a result of fast economic recovery with strong credit impulse and financial market developments."

As laid out in Turkey's new economic program announced by the government this September, the country's inflation rate target is 10.5 percent this year, 8 percent next year, and 6 percent in 2022.

According to the latest data from the Turkish Statistical Institute, the country's annual inflation rate in September was at 11.75 percent, down slightly from 11.77 percent the previous month.

The strong recovery in exports of goods, relatively low levels of commodity prices, and the level of the real exchange rate are expected to support the current account balance in the coming days, Uysal noted.

He added that Turkey's tight stance in monetary and liquidity policies will be maintained until the inflation outlook shows significant improvement. (HA/VK)