ANKARA – The work to tame inflation in Turkey — namely through interest rate hikes — will continue “with determination,” the country’s new central bank chief said Thursday, offering some certainty about efforts to right the battered economy following his precedessor's surprise resignation.
Speaking for the first time since taking the helm of the central bank on Saturday, Fatih Karahan, a former senior Goldman Sachs executive, said he expects inflation to drop considerably over this year and next.
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Karahan, who had been the bank's deputy governor, was part of a new team led by Finance Minister Mehmet Simsek that have been tackling the country’s economic woes through higher borrowing costs.
“We will continue our efforts to establish disinflation with determination. The duty of the central bank is to ensure and maintain price stability,” Karahan told reporters in Turkey’s capital, Ankara.
Karahan replaced Hafize Gaye Erkan, who took over as the bank’s first female chief in June. She announced her resignation on social media platform X, formerly Twitter, late Friday, saying she was a victim of a “character assassination campaign” and would resign to spare her family further anguish.
A leading Turkish newspaper had claimed last month that her parents were exerting undue influence inside the financial institution and that her father had even fired a bank employee. Erkan has vehemently refuted the allegations.
Under Simsek and Erkan, the central bank has approved a series of rate hikes to fight inflation, normalizing Turkey's economic policy in a turnaround from President Recep Tayyip Erdogan's long-held belief that lower borrowing costs ease inflation. That runs counter to conventional economic thinking.
Erdogan, who has previously fired central bank governors who spurned his unorthodox policies, appointed the new economic team after getting reelected in May. Economists say his previous push to keep interest rates low despite sky-high inflation helped trigger a currency crisis and drove up the cost of living, leaving households struggling to afford basic goods.
The Turkish central bank most recently raised its key interest rate by 2.5 percentage points in January, when inflation reached nearly 65%.
Over a series of hikes by the central bank, interest rates have gone from 8.5% in June to 45% late last month, a move widely welcomed by foreign investors who had previously turned their backs on Turkey.
Despite such hikes, inflation remains high — consumer prices rose to an eye-watering 64.86% in January from a year earlier, according to figures released Monday, up from 64.77% in December.
Karahan foresees inflation decreasing in the coming months.
“The end of 2024 (inflation) forecast is estimated to be 36%, and the end of 2025 forecast is estimated to be 14%,” he said.
That figure would still be high — for example, many central banks around the world target inflation of 2% and used a rapid series of interest rate hikes to bring down consumer price spikes that followed supply chain issues during the COVID-19 pandemic and then surges in food and energy costs tied to Russia's war in Ukraine.
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Robert Badendieck contributed from Istanbul.