Central Bank of Turkey (CBRT) Governor Gaye Erkan stated that the tightening in monetary policy has started to lead to an improvement in inflation expectations and said that she believes it is time to switch to TRY. “Leading indicators for November point that the decline in monthly inflation will continue,” Erkan said.
In her speech at the Istanbul Chamber of Industry (ISO), Erkan said that economic growth and the CBRT’s anti-inflation policies and disinflation can be achieved with minimal compromise on economic growth.
“We believe that the time has come to switch to the Turkish lira,” Erkan said, adding, “We see the most direct reflections of this in deposit developments. Demand for Turkish lira savings instruments, especially time deposits, has increased”. Pointing out that the simplification steps, which strengthened the transition to the Turkish lira, increased the effectiveness of monetary policy by encouraging savings in national currency, Erkan stated that “As of November 17, in 12 weeks, Turkish lira deposits increased by TRY 1.7 trillion, while currency-protected deposits increased by TRY 601 billion and FX-denominated deposits declined by around USD 3 billion.”
“We expect industrialists to focus on investments,” Erkan said, adding that they aim to “increase production capacity in areas that will contribute to the current account balance and whose indirect effects will be felt on the exchange rate and price stability.”
Stating that investment and export credits, which came to a standstill in the May-June period, recovered in the July-September period and increased more than six times, Erkan said that they will continue to support companies’ access to financing and financing conditions.
Erkan noted the following:
“As of November 17, gross international reserves increased by USD 36 billion compared to the end of May, reaching over USD 134 billion. This is also the highest level in the last 9 years. Western fund inflows also played a role in the recent increase in reserves. We have made significant progress in a short period of time with the policies we have implemented recently. Predictability in the markets has started to increase. Policy normalization, including tight monetary stance and macroprudential simplification, had a significant impact on the CDS premium.
The 5-year CDS premium, which was 700 basis points in May, declined to 339 basis points despite the geopolitical developments affecting our nearby geography. Investor confidence in Turkey leads to a significant improvement in financing conditions, which in turn contributes significantly to exchange rate stability. As part of the process of improving expectations, exchange rate volatility has been notably declining. The volatility implied by one-month dollar/Turkish lira options has fallen sharply to below 10 percent from around 60 percent in May.”