‘We are determined to reduce inflation,’ says Turkey’s Central Bank Governor

* Photo: Central Bank

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Naci Ağbal, the Governor of Turkey's Central Bank, has delivered a speech at the "Monetary and Exchange Rate Policy for 2021" meeting.

Indicating that the framework of the monetary policies as well as the exchange rate and liquidity policies to be implemented by the Central Bank in 2021 has been set, Naci Ağbal has underlined that "price stability must be the common aim" in that regard.

"The upside risks to inflation require the monetary policy stance to be tight and decisive in 2021," Ağbal has noted, adding that "the monetary policy stance will be set taking into account these risks and with a focus on bringing inflation down and achieving price stability in the medium term."

Further in his presentation, the Central Bank Governor has noted, "In 2021, all factors affecting inflation will be taken into account, and the tightness of monetary policy will be decisively sustained until there are strong indicators that point to price stability and a permanent fall in inflation."

Reiterating that the Central Bank will "decisively implement all the elements of the inflation-targeting framework in 2021", Ağbal has announced the medium-term inflation target of Turkey as 5 percent:

"The medium-term inflation target of 5% set jointly with the government has been maintained. Aware of its responsibility in reaching this target, the CBRT will remain determined and resolute over the target horizon."

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Other highlights from his presentation are as follows:

"Monetary policy decisions will be taken by giving priority to price stability.

"The Central Bank of the Republic of Turkey's (CBRT) main policy instrument is the one-week repo auction rate.

"The interest rate corridor which is used to limit intraday volatility in overnight interest rates and the Late Liquidity Window (LLW) that performs the CBRT's role as a lender of last resort will not be utilized as monetary policy instruments except for their above-mentioned functions.

"Reserve requirements and other Turkish lira and foreign currency liquidity instruments will be used effectively in order to ensure the smooth functioning of the monetary transmission mechanism and to limit the risks to macrofinancial stability.

"The implementation of the floating exchange rate regime will continue, and exchange rates will be determined by supply and demand balance under free market conditions. The CBRT does not have a nominal or real exchange rate target. The CBRT will not conduct foreign exchange (FX) buying or selling transactions to determine the level or direction of exchange rates.

"For effective monetary policy and financial stability, the CBRT's foreign exchange reserves will be strengthened and relevant tools will be used to this end under appropriate conditions in a transparent way and within a specific framework.

"The CBRT considers price stability as a prerequisite for financial stability, and financial stability as one of the most crucial factors for price stability. In 2021, monetary policy focusing on price stability is evaluated as critical for also containing macrofinancial risks.

"Committed to the principles of transparency, predictability and accountability, the CBRT will strengthen its policy communication and data dissemination in 2021." (HA/SD)

* Click here for the full policy paper