Turkey: Central Bank to maintain inflation aim in 2018

By Muhammed Ali Gurtas

ANKARA

Next year the Central Bank of the Republic of Turkey (CBRT) will maintain its price stability-oriented monetary policy framework, and inflation targeting will continue to shape the monetary policy regime, according to the bank's Monetary and Exchange Rate Policy for 2018 report issued Tuesday.

"Monetary policy decisions will be based on inflation expectations, pricing behavior, and other factors that affect inflation," the bank said. "Financial stability will also be considered while inflation is aimed to be kept close to the target."

The bank added that it will continue to cooperate with other institutions to remove structural impediments to lowering inflation.

Saying that its main objective is achieving and maintaining price stability, the bank added: "To this end, the inflation target for the 2018-2020 period is set at 5 percent as per the agreement reached with the government."

"In line with the Medium-Term Program, it is anticipated that inflation will gradually converge to the 5 percent target in 2018-2020," it said.

"Being an element of accountability of the CBRT, the uncertainty band is being kept at 2 percentage points in both directions, as in previous years," the bank said, adding that an open letter to the government will be submitted if outcomes exceed these boundaries at the end of 2018.

According to the Turkish Statistical Institute, consumer prices in Turkey rose 12.98 percent in November on a yearly basis -- the highest annual inflation this year -- up from 9.22 percent at the beginning of 2017.

Previously, the CBRT forecasted that the inflation rate would fluctuate between 9.3 percent and 10.3 percent through the end of 2017.

Since 2005, the lowest annual inflation was seen in March 2011 with 3.99 percent, while the highest was seen last month.

Foreign exchange rate fluctuations

The bank stated that it will continue to implement a floating exchange rate regime next year, and that the exchange rate will not be used as a policy instrument.

"The CBRT does not have a nominal or real exchange rate target under the current exchange rate regime," it said, adding that the main determinants of foreign exchange supply and demand are economic fundamentals, monetary and fiscal policies, international developments, and expectations.

"If the exchange rate movements permanently affect price stability, the CBRT will give the necessary reaction with its instruments," it said, adding:

"The CBRT will continue to closely monitor exchange rate developments and any risk factors related to it, to take necessary measures, and to use the relevant instruments in order to enable the foreign exchange market to operate effectively."

The USD/TRY rate hit its all-time peak at around 3.97 last month, while the 11-month average was 3.64. One U.S. dollar traded for 3.03 Turkish liras on average last year, while the average exchange rate in 2015 was 2.72.

On Tuesday, the U.S. dollar/Turkish lira exchange rate hovered around 3.86 as 3 p.m. (1200GMT), down from Monday's closing rate at 3.8970.

The bank also announced its schedule for next year’s eight Monetary Policy Committee (MPC) meetings and six reports for inflation and financial stability.

The 2018 MPC meetings will be held on Jan. 18, March 7, April 25, June 7, July 24, Sept. 13, Oct. 25, and Dec. 13.

Inflation reports will be released on Jan. 30, April 30, July 31, and Oct. 31, while financial stability reports will be released on May 31 and Nov. 30.