Central Bank explains liraization on inflation letter

The Central Bank has explained in an open letter to Treasury and Finance Minister Nuredin Nebati why the inflation target hasn’t been achieved.

The bank, which is obliged to report to the government the reasons behind the failure of inflation targeting in black and white in line with the law, stated that the inflation remained above the target of 5% and explained the outline of the liraization strategy in the letter.

Annual inflation reached 36.08% in 2021, despite the target being 5% for the year.

The Central Bank has initiated a comprehensive monetary policy review process to achieve sustainable and permanent price stability in the long run instead of focusing on short-term immediate gains, and the most crucial part of this process is the liraization strategy, according to the bank’s letter. The support to be provided by the liraization strategy for the monetary policy instruments through three channels is as follows:

>> First, TRY savings will be encouraged through FX-protected accounts and similar tools, and the returns on such accounts will not be allowed to remain lower than their alternatives.

>> Second, the transition to TRY instruments for the Central Bank’s liquidity and provisioning operations will be carried out progressively.

>> Third, to secure permanent gains in disinflation by improving production capacity, it is important to meet the funding needs of sectors that support the current account balance and engage in FX earning activities at suitable maturities in TRY terms.

“Coordinated economic policies and the widest possible public consensus are essential to the success of the steps taken to achieve and maintain price stability,” the letter said.

“The disciplined fiscal stance is expected to have a high contribution to the fight against inflation. For permanent price stability, full alignment of taxation strategies with price stability targets as well as the effective use of public inspection, supervision, and regulation capacity against the factors hindering price competition in trade will remain important,” it added.

Leave a Reply

Your email address will not be published.