Turkish central bank to woo local businesses to convey policy ideas

A man leaves the headquarters of Türkiye's central bank in Ankara. Central bank officials will step up their meetings with local business leaders this year, seeking to improve policy communication at the start of what promises to be a long cycle of interest rate cuts.

Turkish central bank officials will step up their meetings with local business leaders this year, seeking to improve policy communication at the start of what promises to be a long cycle of interest rate cuts.

The plan suggests that monetary officials, as well as Treasury and Finance Minister Mehmet Simsek, listen to criticism from some quarters that they have paid too much attention to foreign investors since President Recep Tayyip Erdogan adopted an economic policy more favorable to the market in mid-2023.

The move also highlights how they view the scale of the challenge ahead: growing an economy that entered a technical recession in the third quarter while continuing to battle stubbornly high inflation.

International interest in lira assets has picked up over the past year, as Simsek and central bank governor Fatih Karahan raised rates to rein in spiraling prices. But a series of overseas roadshows prompted speculation among local market participants and economists that they had not received the same information.

Karahan denies these claims, saying that in November the central bank always shares the same things verbatim in these meetings that we say here. He has now scheduled meetings on January 17 in the central province of Eskisehir, where the governor will discuss monetary policy and macroeconomic prospects with NGOs and businesses, according to people with direct knowledge of the matter.

Similar events are expected to take place across the country, particularly where economic activity is robust, in the coming months.

Ensuring that the outlook of policymakers matches those of businesses and households is particularly important as the central bank begins to reduce borrowing costs while inflation remains high. Annual price growth slowed to 44.4% last month from 47% in November, still almost 9 times the official target, while borrowing costs were reduced for the first time in two years.

Businesses and consumers expect higher inflation over the next 12 months, compared to the 21% targeted by policymakers. Investors, on the other hand, expect significant rate cuts at the next eight meetings.

Household behavior presents inflation risks through demand for goods and services. These upside risks were reiterated by the central bank when it cut rates from 50% to 47.5% last month, adding that the cuts would not necessarily stay at the same pace.

These meetings are also important as some companies are starting to call for consecutive rate cuts amid a slowdown in production.

It is very important that rates are reduced to reasonable levels to support our weakened businesses, said Mustafa Gultepe, chairman of the Turkish Exporters' Assembly, after last month's rate cut.

The central bank holds four meetings each year on the inflation outlook, during which the governor also answers questions from journalists and economists. This year's first presentation is scheduled for February 6.

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