The Governor of the Central Bank of the Republic of Turkey, Fatih Karahan, stated that “The number we reached from the data collected this month is 2.5 percent. The market expectation is 2.2 percent. TÜİK inflation figures came slightly above our expectations.”

TCMB President Fatih Karahan presented global economy, inflation, monetary policy strategies, and the impacts of their decisions on financial markets, as well as observations on inflation and factors causing short-term inflation in Turkey in front of the Budget and Planning Committee of the Grand National Assembly of Turkey. Karahan then answered questions from the committee members. “There is absolutely no need for hot money for economic conversion,” said Karahan, responding to questions from opposition members about hot money. He pointed out that in the history of such investments, foreigners sometimes profit and sometimes lose, stating, “This is inherent in this type of investment. In addition, the swap balance has never exceeded $20 billion. It hovers around $16, $17, $18 billion. These figures are quite small compared to the reserves level I announced today, which is $150 billion. Secondly, I already indicated the level of the current account deficit. It is $20 billion. The data released this month also suggests it will decrease to $15 billion. By the end of the year, it will be below $20 billion. It has significantly decreased compared to last year. We were talking about an approach closer to $60 billion. There is absolutely no need for hot money for economic conversion. I wanted to express this clearly with data. We don’t need it. However, investors can make investments here from time to time,” he added. “MERIT IS OF THE UTMOST IMPORTANCE FOR US”

Answering questions regarding appointments at the Central Bank, Karahan emphasized, “Merit is of the utmost importance to us. I want to make this clear. Many of our appointees were bank executives who had previously held managerial positions. We do not know their opinions or political inclinations when appointing them. We evaluate them based solely on their performances. Sometimes as managers, sometimes making individual contributions, we try to benefit from each person in the best possible way. The Central Bank of the Republic of Turkey is truly one of the strongest institutions in terms of human resources. I just wanted to mention that,” he said. “A DECREASE OF $100 BILLION IN THE KKM”

Discussing the Deposit with the Protection of Exchange Rate Mechanism (KKM), Karahan stated that the balance of KKM in August 2023 was around $143-$145 billion. He mentioned, “Currently, the KKM balance has fallen below $45 billion. That is around a decrease of $100 billion. It was important for this to be gradual, as our reserve outlook was very different at that time. That is why we made these regulations and reviewed them periodically. We set targets for banks by fine-tuning. So far, we have increased reserves and converted the KKM balance into Turkish Lira accurately without undermining macrofinancial stability or, on the contrary, strengthening it,” he stated.

“THE KKM BALANCE WILL CONTINUE TO DECREASE IN LINE WITH DEVELOPMENTS”

Speaking about why the KKM has not been terminated, Karahan mentioned, “At this stage, we do not find the balance appropriate. It needs to decrease a little more. We will reconsider our evaluation after directing this process a bit more. However, these adjustments will continue for some time. The KKM balance will decrease in line with developments. The issue of profit and loss was also discussed. We transparently stated last year how much of the loss came from the KKM. This process has steps. It needs to undergo an independent audit. Therefore, we do not provide figures on profit or loss throughout the year. We only provide the balance monthly,” he explained.

“INFLATION IN SEPTEMBER SURPASSED OUR EXPECTATIONS”

Regarding inflation figures announced by TÜİK for September, Karahan stated that the Central Bank collects data from the field using the same methodology as TÜİK to calculate an index. Karahan said, “The number we reached from the data collected this month is 2.5 percent. The market expectation is 2.2 percent. TÜİK inflation figures came slightly above our expectations. Raw food prices came higher than our expectations this month. There is quite a high volatility in this regard. Raw food has been coming significantly lower for several months. This month, it came a bit higher. It is necessary to look at the general picture. We mentioned this also in June. In June, inflation was 1.6 percent. It was well below the market expectation. Historical indicators were also positive. Although it was as we desired, we said at that time that ‘it would not be correct to draw conclusions from a single point.’ When inflation levels are high, volatility is also high. This is the case all over the world. Sometimes it can come high, sometimes low from month to month. There is a two-way volatility,” he analyzed.

“WE WILL MAKE POLICY MOVES BASED ON 2025 AND BEYOND TARGETS”

Discussing directives regarding policy rates, Karahan said, “We look at inflation trends and expectations when it comes to policy rates. We determine our monetary policy stance based on the main downward trend in inflation. The slowing domestic demand is also important in the direction of inflation trends. We monitor pricing behaviors, which are crucial. Inflation expectations influence pricing behaviors and do not reflect the expenditure side, so it is important to us. Therefore, we make our decisions by reviewing quite a large number of data. We want to be sure about significant and sustainable decline when determining the monetary policy stance, not only in terms of this year’s targets but also considering our targets for 2025 and beyond,” he stated.

“In a period of high inflation, it is quite difficult to predict the exact amount of inflation at the beginning of the year,” he explained the difference between the Central Bank and the inflation predictions in the Medium-Term Program. “For this year, the prediction included in the Medium-Term Program ranges from 40 to 45 percent. This is within the Central Bank target band. It is quite difficult to predict exactly how high inflation would be at the beginning of the year when inflation is so high. Therefore, the band is important, and we believe it will remain within the band. We evaluate this comprehensively in our Inflation Report,” he stated.

“ENAG, TÜİK, AND İTO DATA ARE LIKE GREEN APPLE, RED APPLE”

Karahan shared that ENAG, TÜİK, and İTO employ different methods when collecting data, emphasizing that these three indices do not measure the same thing but rather entirely different things. He said, “Adding these three indices together is not accurate. It is not as different as comparing an apple to a pear, but maybe like a green apple to a red apple. They are not the same. Therefore, it is correct to monitor them not on a monthly but on a 12-month, 6-month basis. But it is not correct to expect exactly the same figures. Because what they measure is different, meaning the prices they collect are different. They do not collect the prices of the same products. The regions are different. İTO collects only in Istanbul, while TÜİK collects more generally, and the methods are different. For instance, ENAG collects online. Therefore, there are significant differences,” he explained.

“THERE IS CURRENTLY NO BANKNOTE WORK UNDERWAY”

Discussing whether new banknotes would be printed, Karahan expressed, “As the Central Bank, we provide whatever banks request through the issuance process uninterrupted. Banks themselves load banknotes into ATMs according to their preferences and market needs. As for the composition of banknotes in circulation, I mentioned that we are evaluating it. We made a decision considering the developments in cashless payment methods, and currently, there is no banknote work underway. We continue with the current banknotes but make periodic evaluations,” he concluded his presentation to the Budget and Planning Committee.

MONTHLY INFLATION FIGURES ANNOUNCED TODAY

According to the inflation figures for September released by the Turkish Statistical Institute (TÜİK), inflation increased month-on-month in September by 2.97 percent, exceeding expectations. The annual inflation fell from 51.97 percent to 49.38 percent. Thus, for the first time since July 2021, annual inflation fell below the policy rate.