Central Bank chief aims for lasting price stability

Turkish Central Bank Gov. Naci Ağbal said the economy has lost some pace recently but signs that Turks are shifting toward lira assets suggests a reversal in dollarization may come.

"We are working day and night to achieve lasting price stability," Ağbal told Reuters in an interview.

"We know we are in a difficult period."

After years of avoiding Turkish assets, investors have begun edging back in, with some $15 billion in foreign inflows since November driving the lira up 15 percent and dramatically cutting gauges of market risk.

Ağbal, a former finance minister, said past cycles - including in 2019, when rates came down from 24 percent after a currency crisis - lay bare the economic costs of easing policy too early.
This time, he said, a "strong disinflationary bias" will guide the bank's approach. It will manage expectations by "moving ahead of the markets," he added.

"As the market confirms this determination of ours, inflation expectations" will dip, Ağbal said. "We expect capital inflows to continue" especially with longer-term portfolio investments, he added.

The governor does not expect the Central Bank to begin considering cutting interest rates from 17 percent until much later this year given upward pressure on already high inflation, and rate hikes are still a possibility.
He said the central bank intends to move ahead of the market, including swiftly hiking rates if there is any sign that inflation, now 15 percent, might drift higher than expected.

His comments, including the revelation that Turkey is no longer seeking currency swap lines with foreign counterparts, could reinforce a growing view among investors that the bank is in no rush to start easing policy.
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