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Turkey\u2019s Central Bank has two basic duties: keeping inflation under control and ensuring stability in financial markets. In 1997, the bank and the Treasury signed an agreement to cooperate to lower inflation rates.\u00a0 The idea was to lower inflation by adopting monetary and financial measures in cooperation with relevant public agencies. Though this protocol is valid, inflation still cannot be lowered.<\/p>\n
The Central Bank had forecast improvement in inflation after June 2014. Basci, under heavy pressure, had promised lower inflation and interest rates in a June 2 presentation to the council of ministers. On June 3, Prime Minister Recep Tayyip Erdogan, who was unhappy with Basci, said “The Central Bank said it will lower interest rates… I don\u2019t find their approach to interest rates worthwhile.”<\/p>\n
What the prime minister had meant to say was explained by pro-government Sabah, which reported that the governor was given a three-month grace period.<\/p>\n
But months have passed and the anticipated reduction in inflation and therefore in interest rates did not materialize. When the trend continued unabated, the 5.3% inflation rate was pushed up to 9.5%. By naming this new target in its medium-term program, the government has acknowledged in advance that the inflation rate will double by the end of the year.<\/p>\n
Meanwhile, the IMF revised its prediction for Turkey\u2019s inflation upward to 9% from 7.8%. Inflation did not go down and the interest rate was not reduced, but the alternative plan that was to be applied after the three-month grace period was not introduced.<\/p>\n
Prime Minister Erdogan, who was targeting Basci, has since been elected president. Prime Minister Ahmet Davutoglu, who formed the new government, does not have the luxury of making controversial decisions by changing the economic management when the regional developments signal increased risks.<\/p>\n
Babacan and his economic management team stipulated the lowering of inflation as the primary target of its 2015-17 program, whereas earlier, the primary target was to lower the current deficit. That target has been achieved to some extent. The current deficit, which was above $60 billion at the end of last year, is now below $50 billion. The goal will be now to achieve the same success in lowering inflation. But it is not possible. Neither Babacan nor Basci have enough time to leave behind a legacy of success.<\/p>\n
Mehmet Cetingulec writes:\u00a0 Turkey\u2019s Central Bank, whose resistance to government pressure to lower interest rates proved to be the right decision, has not had the same success in ensuring financial stability by controlling inflation. The Central Bank\u2019s record against inflation … Continue reading ![\"Inflation](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2014\/10\/Inflation-in-Turkey-300x211.jpg\")
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