“We cannot consider ourselves very successful,” Sahap Kavcioglu said at a news conference in Ankara when asked about the bank’s efforts to fight rising prices. “God willing, the decisions we have taken will make us successful in a short time.”

The recalibration of the year-end inflation estimate is the fourth increase this year. The official annual inflation rate currently stands at a 24-year high of 83.45%, although independent economists put it at 186.27%.

Kavcioglu, a former lawmaker for the ruling Justice and Development Party and the bank’s fourth governor in as many years, said inflation would peak at around 85% in late fall before dropping.

“More gobbledegook and gibberish from Kavcioglu,” Timothy Ash, an emerging markets strategist at BlueBay Asset Management, wrote in a note to investors. “Not actually saying how inflation will fall.”

While most central banks have been raising interest rates to combat inflation — in step with orthodox economic theory — Turkey has been pursuing a policy of slashing loan rates spurred by President Recep Tayyip Erdogan, a self-declared “enemy” of high interest rates.

The Turkish Central Bank cut rates by 150 base points to 10.5% earlier this month — a bigger cut than expected — after Erdogan demanded single-digit interest rates by the end of the year. The bank said a similar cut would come in November.

Kavcioglu said he aimed to create “supportive” financial conditions to counter “a period of heightened pessimism regarding global growth.”

The strategy is aimed at boosting growth ahead of presidential and parliamentary elections next year. Polls reveal the economic crisis is the main concern for Turkish voters while also showing the opposition closing in on Erdogan and his electoral alliance with ultranationalists.

By prioritizing exports, production and investment, the government hopes to provide a current account surplus and reduce inflation. Turkey’s foreign trade deficit widened to $9.6 billion in September, figures released Thursday showed, a 268% rise on the same month last year.

The rate-easing cycle has seen the Turkish lira plummet, losing half its value against the dollar in a year. The lira’s performance has fueled inflation by pushing up the price of imports.

Further evidence of the troubles facing households emerged Thursday as the Confederation of Turkish Trade Unions reported the minimum cost of feeding a family of four had surged by nearly 135% over the past year.

The “hunger limit” — the monthly amount necessary to provide a family with a healthy diet — rose to 7,425 liras ($399) for October, some 1,925 liras ($103) above the minimum wage, the confederation said. The total necessary household expenditure, including items such as energy, transport and housing, was 24,185 liras ($1,299).

The confederation added that inflation had “brought the cost of living to an unbearable point.”

Meanwhile, the banking sector, normally one of the most resilient parts of the Turkish economy, has warned it could be destabilized by new rules forcing banks to buy government bonds.

Bank executives met Finance Minister Nureddin Nebati on Monday. Reuters reported Thursday that the bankers had “complained for the first time” about new regulations aimed at propping up the economy.

The measures are designed to stem the lira’s spiral and dissuade the use of foreign currency while interest rates continue to be lowered. They include rules for banks to hold bonds as loan collateral and if a bank has less than half its deposits in liras.

The policy has also cut the government’s borrowing costs as it prepares a 4.47 trillion-lira ($240 billion) election-year budget that aims to ease voter hardship during the cost-of-living crisis.

On Thursday, Kavcioglu denied that there was a “systematic risk” to the banking sector. “We are not talking about any risk in banking at the moment," he said. "If there were such a thing measures would be taken immediately.”

BlueBay’s analyst Ash, however, questioned a policy of forcing banks to government bonds. “I fear [that] when the music of the looming election stops we might find that there are no chairs to sit on as they have all been mortgaged off,” he said.

Al-Monitor

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