Turkey's cenbank chief says policy is tight enough -sources

Turkey's central bank governor told investors on Wednesday that policy was sufficiently tight to tackle inflation and he expected core price measures to fall in the short term, according to three sources on a briefing call with the bank.

Turkey's central bank governor told investors on Wednesday that policy was sufficiently tight to tackle inflation and the expected core price measures to fall in the short term, according to three sources on a briefing call with the bank. The central bank surprised markets with a 100 basis-point interest rate cut last month, sending the lira to record lows on concerns about President Tayyip Erdogan's influence over monetary policy.

Bank Governor Sahap Kavcioglu provided dovish signals on the call with local investors but gave no clear indication whether he sees more policy easing ahead, or how much, the sources told Reuters. He added that the bank does not only look at core inflation measures in determining monetary policy, but the sources also said.

Last month, the key rate was lowered to 18% while headline inflation, the bank's official target, rose to 19.58% in September, leaving Turkey's real interest rate sharply negative. After headline inflation rose above the policy rate in August, the bank started emphasizing core "C" inflation, which also rose in September, to 16.98%.

Kavcioglu, Turkey's fourth central bank governor in under three years, said on the call that policy will ensure disinflation as soon as possible and take into account possible risks, the three sources said, requesting anonymity. Two sources said Kavcioglu also said that the bank had been implementing a tight policy for a year and last month's rate cut did not change that.

Core inflation indicators were trending downward in the near term, while temporary effects keeping prices elevated will fade, Kavcioglu said according to the sources. He added that the easing of other temporary measures is a buffer against risk.

Nilufer Sezgin, executive vice president at Is Portfoy, said some of the guidance provided in the meeting "makes one think that the tendency to cut rates continues," especially given non-food measures are lower than headline inflation. "On the other hand, (Kavcioglu) expressed that they take into account inflation expectations. The possibility of a rise in the market's inflation expectations could be an issue that pressures monetary policy in the short term," she said.

The central bank did not immediately comment on what was said on the call. The monthly calls - including one later on Thursday with foreign investors - are closed to the press. The bank targets 5% headline inflation. But it has been in double digits for most of the last five years and in September hits its highest level in two and a half years.

 

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