Underlining that tight monetary policy will continue until inflation falls to an estimated figure, Central Bank Governor Erdem Başçı said on Tuesday that once the capital flows to the economy begin, the long-term currency exchange rate is predicted to be 1.80 Turkish liras per US dollar in the next year.
Speaking at a monetary policy conference held at Pamukkale University in Denizli province, Başçı assessed the recent economic developments, adding that consumers should not be expecting a raise or decline in interest rates. Başçı said that every three months the central bank evaluates the situation of the economy and he chiefly stressed that inflation would begin to decline in the near future, while the tendency for moderate growth in domestic demand and exports would stay constant. In addition, the gradual recovery in the current account deficit (CAD), excluding trade in gold, will continue, according to Başçı.
“The latest inflation rate of July is in line with our inflation predictions, and we expect the decline to continue. However, our inflation prediction in July was 6.2 percent, after which we also released predictions for interest rate and monetary policy, but not the currency exchange rate estimate. Our July currency exchange projection was TL 1.92, and if it was fixed at that rate then the inflation for the year's end would easily be 6.2 percent. But since the exchange rate has now risen temporarily, inflation will be slightly higher than 6.2 percent at the year's end. Our surveys indicate the rate will be at 7.44 percent, while the consensus among economists is that the inflation rate would be 7.4 percent.”
Explaining that the proximity of the currency exchange rate to the year-end target determines the proximity of the inflation rate to the targeted rate, Başçı commented that as the exchange rate gets close to TL 1.92 per dollar, the inflation rate would fall to 6.2 percent. “We will continue with tight monetary policies until inflation comes in line with the predictions, so consumers should not be expecting any reductions in the interest rate. The growth rate in developed countries has fallen from 8 percent to around 4 percent due to a global slowdown in the economy, and we will implement policies in regards to that.”
According to Başçı, the value of the Turkish lira can be fixed on its own depending on the volatility of real exchange rates. “Once the dynamics are back to normal, it is possible that the rate will be TL 1.80 per dollar, depending on the flow of capitals. Then we can face the issue of exporters starting to complain and asking us to prevent the exchange rate from coming down to TL 1.80. But we cannot prevent it from happening, as it all naturally falls within the market conditions.”
The exchange rate was TL 1.98 per dollar, when the markets opened and meanwhile, as Başçı was speaking, it had increased to over TL 2 during the day -- eventually falling back to TL 1.99 around 5 p.m., when Today's Zaman went to print.
“Turkey can finance its CAD”
Pointing out that the Turkish economy has the power to finance its CAD, the bank head expressed that CAD has been seriously financed by the accumulation of dollar reserves and other reserve options. “There are no problems with Turkish banks and the private sector borrowing from abroad, and foreign direct investments (FDIs) continue to enter the country. And as FDI continues and discipline on public accounts is provided, Turkey will not face any problems financing its CAD.”
Başçı also said emerging economies were the most affected by the US Federal Reserve's (FED) actions since June and, due to volatility in the exchange markets, the Turkish lira had lost 10 percent of its value. “As a result of our liquidity policy, the Turkish economy responded to the volatility strongly. The clearer the FED's messages are, the more positively the markets will respond,” he said.
CihanLast Mod: 24 Eylül 2013, 22:46