Surprise Open Letter from the Central Bank to the Government

The Central Bank of the Republic of Turkey (CBRT) open letter Wrote. In the letter addressed to the Minister of Treasury and Finance Nureddin Nebati, it was stated that inflation targets were deviated and that it was necessary to work on it. In the letter, the 2021 inflation target of 5 percent realized as 36 percent. was reminded.

CBRT’s letter to the government, at first glance it can confuse you. You might have thought that such a move was due to a tension between the government and the CBRT. However, this is not the case. of the CBT by law he was supposed to write such a letter, and as of now it has been done. In the letter made by the Central Bank officials, the emphasis was placed on liraization.

Here is the open letter of Markez Bank to the government:

“According to Article 42 of the Central Bank Law No. 1211, If the inflation target is not met The Central Bank of the Republic of Turkey (CBRT) is required to notify the Government in writing of the reasons for the deviation from the target and the measures to be taken, and disclose it to the public. Consumer inflation set around the 5 percent target by the end of 2021 above the uncertainty range has taken place. In this context, we present the January 2022 Inflation Report, which explains the reasons for the significant deviation from the targeted path and the measures taken and to be taken to achieve the targets, for your information.

CBRT, in a framework that aims at sustainable price stability, rather than short-term temporary gains has initiated a comprehensive fundamental monetary policy review process that will ensure long-term and lasting success, and the liraization strategy constitutes the essential element of this process. LiraizationIn the medium and long term, the support it will give to monetary policy instruments in the fight against inflation will be realized through three channels.

First, savings in Turkish lira will be encouraged through currency-protected accounts and similar instruments, and their returns will be based on their alternatives. to stay behind will not be allowed. Currency-protected savings instruments will also support the transformation of the very short-term deposit structure, which has not been resolved for years, to extend the maturity. it is understood. We expect the liraization process to make a permanent contribution to price stability in the medium term, with our reserve requirement and currency-protected deposit decisions.

Second, the transition to Turkish lira instruments in CBRT liquidity and reserve operations. is a gradual management. Turkish lira collateral and instruments in accessing Turkish lira, especially reducing the share of currency swap transactions in total funding will be prioritized. This principle will also be observed in required reserve policies.

Third, by improving production capacity in the fight against inflation. lasting gains In order to ensure this, it is important to meet the funding needs of sectors that support the current account balance and earn foreign exchange in lira with appropriate maturities. In the financing of production with the support of loans focused on these targets dependency on foreign debt The necessary conditions will be provided for the long-term stability of exchange rates under free market conditions and around economic fundamentals.

For the success of the steps that will ensure and maintain price stability, the harmony between economic policies and social consensus should be created on the broadest possible basis. In this context, the potential for success for sustainable price stability is greater than ever. It is expected that the fiscal discipline stance will support the fight against inflation at a high level. taxation strategies with price stability targets full harmonization and effective use of the supervision, surveillance and regulation capacities of the public against the factors that hinder price competition in trade; will continue to maintain its importance in order to establish price stability permanently.

Regards”

To the original of the letter here available via the link.