Introduction to Türkiye’s Economic Situation
The Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan has rejected claims that he blamed citizens’ gold hoarding for the country’s inflation problem. He stated that his remarks at an investor meeting had been misrepresented on social media. Karahan explained that during a panel in the Netherlands on global macro-financial stability, he had emphasized that price stability, rather than household behavior, would ultimately reduce demand for keeping gold outside the financial system.
Gold Wealth Effect and Consumption
The CBRT Governor noted that the wealth effect from last year’s increase in gold prices alone exceeds $100 billion, supporting household consumption through higher perceived savings. "Our estimates put the stock of under-the-pillow gold at between $400 billion and $500 billion. Some institutions suggest even higher levels," Karahan said. The disinflation process has so far slowed the growth of under-the-pillow gold holdings kept privately at home rather than in banks, as the Turkish lira’s real appreciation strengthened, a trend that is likely to support the ongoing disinflation.
Fighting Inflation
Karahan described the anti-inflation effort as a long race. "We liken the fight against inflation to a marathon. Just as runners adjust their speed depending on conditions, in disinflation, there may be times when the pace quickens or slows. The important point is to continue moving steadily toward the target." He highlighted that Türkiye’s annual inflation had fallen from 75% to 33% following a period of monetary tightening, rejecting the view that no progress had been made.
Addressing Carry Trade and Exports
Karahan also addressed questions on "carry trade" operations, in which investors borrow in a low-interest currency and invest in higher-yielding assets. He noted that since the beginning of the year, Türkiye has not ranked among the top emerging markets in terms of carry trade returns. The central bank’s actions remain focused on inflation, and maintaining interest rates at necessary levels may increase the Treasury’s interest expenditures. Karahan also commented on exports and industry, responding to arguments that Türkiye’s competitive advantage had weakened with rising costs. He noted that nearly half of Türkiye’s exports are denominated in euros and that producer prices had increased in line with the euro’s appreciation.
Challenges and Future Outlook
The main challenge is not competitiveness but weak external demand, Karahan said. He noted that growing employment in technology-heavy industries will reduce economic vulnerabilities over the medium term. Addressing the rise in corporate bankruptcies and concordat appeals, Karahan stated that the impact of failed businesses remains limited. The central bank would maintain a tight stance until its primary goal of price stability is achieved, Karahan reiterated, noting that inflation is expected to decline through this approach.
Conclusion
In conclusion, the CBRT Governor Fatih Karahan has emphasized the importance of price stability in reducing demand for keeping gold outside the financial system. He highlighted the progress made in fighting inflation, despite challenges such as weak external demand and rising costs. The central bank remains committed to achieving its primary goal of price stability, and Karahan is confident that inflation will decline through a combination of monetary tightening and structural reforms. As Türkiye continues to navigate its economic challenges, it is essential to remain focused on the long-term goal of achieving price stability and promoting sustainable economic growth.
