Türkiye’s Central Bank chief on Tuesday said the body would maintain policies under its liraization strategy, aimed at eliminating sensitivity to foreign exchange rate in relation to inflation and pricing behavior.
“In the forseeable future, the policy combination, we have implemented within the scope of the liralization strategy, will continue to support financial stability through healthy credit growth and potential production through financing costs. This will make a positive contribution to the supply-demand balance,” said Governor of Central Bank of the Republic of Türkiye (CBRT) Şahap Kavcıoğlu.
“As a result, inflation expectations and pricing will improve, leading to a permanent decline in inflation,” Kavcıoğlu told the bank’s 91st Ordinary General Assembly meeting.
The liraization strategy, which it says is its integrated policy framework, seeking to stabilize the national currency, which had been pressured by steep declines, was unveiled last year.
Kavcıoğlu explained that the strategy aimed at eliminating sensitivity to foreign exchange rate in inflation and pricing in the short term, as well as strengthening the current account balance in the medium term by supporting production and exports.
“With the macroeconomic tools and foreign exchange rate-protected deposit products we had commissioned for this purpose, we initiated the liralization process on both the asset and liability sides of the banking sector,” the governor said.
In terms of the formation of financial conditions the strategy will ensure a permanent improvement in the current account balance by increasing production and exports. Kavcıoğlu added that they had adopted a targeted credit approach.
Kavcıoğlu suggested that a gradual normalization of inflation had started in the second half of 2022, along with the easing of global supply shocks and stability in foreign exchange markets.
Türkiye’s annual inflation fell to 55.18% in February, marking a notable regress from the peak of 85.5% – a 24-year high – registered last October.
Meanwhile, the Central Bank on Tuesday announced it decided to pay dividends from its 2022 accounting period to shareholders, including the Treasury.
The Central Bank’s profit stood at TL 72.02 billion ($3.77 billion), according to the country’s Official Gazette. Economists expect the Central Bank to transfer some TL 40 billion to Treasury after its donation for the devastating earthquakes that struck southeastern Türkiye last month.
The bank committed to a donation of TL 30 billion from its profits to areas affected by the quakes, which killed more than 50,000 people and destroyed hundreds of thousands of buildings.
The Turkish government has emphasized on low interest rates to boost production, investments, employment and exports with the aim of achieving a current account surplus, which it says will lead to a lasting fall in inflation.
Last year, the Central Bank cut its benchmark policy rate by 500 basis points to counter an economic slowdown, and then held it at 9% in December and January. It trimmed by another 50 basis points in January to boost industrial production and employment after the earthquakes. It left that key policy unchanged last week.