ANKARA, Turkey - The new chief of Turkey's central bank, Fatih Karahan, has affirmed his commitment to combat inflation, signaling that the country's efforts to stabilize its economy will continue. Karahan, a former senior executive at Goldman Sachs, replaced Hafize Gaye Erkan, who resigned unexpectedly last week.
In his first public statement since assuming his new role, Karahan expressed optimism about the prospects of reducing inflation in Turkey. He stated that he expects inflation to significantly decrease throughout this year and the next. Karahan, along with Finance Minister Mehmet Simsek and their team, has been implementing measures such as interest rate hikes to address the country's economic challenges.
'We will continue our efforts to establish disinflation with determination. The duty of the central bank is to ensure and maintain price stability,' Karahan asserted during a press conference in the capital city Ankara.
Karahan's appointment comes after Erkan's sudden departure, which she announced through a social media post. In her statement, she cited a 'character assassination campaign' and a desire to protect her family as reasons for resigning. However, Erkan firmly denied the allegations made against her in a Turkish newspaper, which claimed that her parents exerted undue influence in the central bank.
Under Erkan and Simsek's leadership, the central bank initiated a series of interest rate hikes as part of a strategy to combat high inflation. This marked a departure from President Recep Tayyip Erdogan's previous stance, which favored low borrowing costs to tackle inflation. The shift in economic policy reflects a recognition that lower interest rates can exacerbate inflationary pressures.
Erdogan, known for his unorthodox policies, has dismissed central bank governors in the past who did not align with his views. After his re-election in May, he appointed the new economic team to address the economic challenges the country faces. Economists attribute the previous persistence of low interest rates to the currency crisis and the subsequent rise in the cost of living, which placed a burden on households struggling to afford essential goods.
In response to the inflationary pressures, the Turkish central bank has gradually raised interest rates. Since June, rates have increased from 8.5% to 45%, attracting foreign investors who had previously been cautious about investing in Turkey. Despite these efforts, inflation remains high, with consumer prices rising to a staggering 64.86% in January compared to the previous year.
However, Karahan remains optimistic about the future. He predicts a decrease in inflation in the coming months, with estimates suggesting it will reach 36% by the end of 2024 and 14% by the end of 2025. It is worth noting that these figures are still high compared to the inflation targets set by many central banks globally, which aim for a rate of around 2%.
Taming inflation and stabilizing the economy will be crucial for Turkey's recovery and the well-being of its citizens. The central bank's continued efforts under Karahan's leadership will be closely watched, as the country aims to address the challenges posed by high inflation and create a more favorable economic landscape for its people and investors alike.
