Fight Against İnflation Requires Collective Efforts: Cb

– Central Bank's letter to the government on Jan. 26 urged fight against inflation required "collective efforts" and wowed to "do its part" in a bid to fight against inflation in 2016.

Central Bank presented a letter to explain the reasons of the "significant breach" in inflation target as well as measures to be taken, with respect to Central Bank Regulation Article 42.

The inflation target for 2015 which was set jointly with the Government as 5 percent has reached 8.81 percent at end-2015 reaching 76.2 percent, "notably exceeding the target".

According to Central Bank's letter addressing Deputy Prime Minister Mehmet Şimşek, "notwithstanding the significant external shocks in recent years, the current policy framework limited the worsening in inflation and inflation expectations".

"Price stability is yet to be achieved. Ten years of experience with inflation targeting has shown that the fight against inflation requires collective efforts from all relevant parties" said the letter.

"Government income and wage policies as well as structural issues related to food prices are important components in this endeavor. Moreover, macroprudential policies towards prudential borrowing also facilitate the fight against inflation by supporting a balanced growth. Thus, bringing inflation permanently down to the 5-percent target requires all institutions to continue resolutely with the efforts made in recent years" it added.

Central Bank's letter stressed that inflation expectations have" deteriorated notably in recent months due to minimum wage developments and the high core inflation driven by cumulative exchange rate pass-through effects".

"The Central Bank monitors the pricing behavior closely and adjusts the degree of tightening within the wide interest rate corridor to contain inflationary pressures. A flexible policy framework, coupled with a variety of instruments enabling a multi-dimensional approach, enhances the effectiveness of monetary policy in an environment of heightened global volatility."

According to the letter, "against this backdrop, upside inflationary risks will be monitored carefully in the upcoming period and all policy instruments will be used to bring inflation down in 2016". - Istanbul