Turkish central bank to court local firms to convey policy ideas

Turkish central bank officials will step up meetings with local business leaders this year, seeking to improve policy communication at the start of what’s expected to be a lengthy interest-rate cutting cycle.

The plan suggests monetary officials, along with Treasury and Finance Minister Mehmet Simsek, are listening to criticism in some quarters they have focused too much attention on foreign investors since President Recep Tayyip Erdogan adopted a more market-friendly economic policy in mid-2023.

The move also shines a light on how they view the scale of the challenge ahead: to grow an economy that entered a technical recession in the third quarter while keeping up the fight against stubbornly high inflation.

International interest in lira assets has revived in the past year as Simsek and central bank Governor Fatih Karahan boosted rates to tame spiralling prices. But a flurry of overseas roadshows has prompted speculation among local market participants and economists that they have not been provided with the same information.

Karahan denies those claims, saying in November the central bank always shares “word-for-word the same things in those meetings as 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 outlook with NGOs and businesses, according to people with direct knowledge of the matter.

Similar events across the country, especially where there’s robust economic activity, are expected to take place in the coming months.

Ensuring the outlook of policymakers corresponds with that of firms and households is especially significant as the central bank begins lowering borrowing costs while inflation remains elevated. Annual price growth slowed to 44.4% last month from 47% in November, still nearly 9 times the official target, while borrowing costs were reduced for the first time in two years.

Businesses and consumers anticipate higher inflation over the next 12 months compared with the 21% aimed for by policymakers. Investors, on the other hand, expect sizeable rate cuts in all of the next eight meetings.

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

The meetings are also important as some businesses begin to call for consecutive rate cuts amid a slowdown in production.

“It’s very important that rates are reduced to reasonable levels to support our weakened companies,” said Mustafa Gultepe, head of the Turkish Exporters Assembly, following last month’s rate cut.

The central bank holds four meetings each year on the inflation outlook, where the governor also takes questions from reporters and economists. The first presentation of this year is slated for February 6.