Türkiye's central bank is cautious about inflation risks and ready to take any necessary action if needed, its governor said at an investor meeting in the United States late last week, according to bankers.

Hafize Gaye Erkan's remarks came at the inaugural "Investor Day" event in New York, which attracted over 200 high-level representatives from the world's largest investment funds, with a combined size exceeding $50 trillion.

According to participants at the meeting, Erkan said monetary tightness will be maintained as long as needed to ensure sustained price stability.

Assessing that monetary tightness is significantly close to the level required to establish the disinflation course, the bank reduced the pace of monetary tightening in December, she was cited as saying.

"We anticipate the completion of the tightening cycle as soon as possible," she also said.

A former Wall Street bank executive, Erkan is part of the economy administration that reversed yearslong easing policy and embraced a sharp policy tightening after President Recep Tayyip Erdoğan won a reelection in May.

The policy shift aims to arrest inflation, reduce trade deficits, boost foreign investment, rebuild foreign exchange reserves and stabilize the Turkish lira.

Erkan has spearheaded seven consecutive interest rate hikes totaling 3,400 basis points through December to tame inflation, which neared 65% last month.

It is expected to increase further in the coming months after a nearly 50% rise in the minimum wage and peak around 70%-75% in May, before falling in the second half of the year.

The central bank has signaled that the aggressive rate hikes – which took borrowing costs from 8.5% to the current 42.5% – could soon end. Still, it pledged to maintain tight monetary policy as long as needed.

Erkan told investors that 2024 would be a year of disinflation, stressing determination to curb the pace of price increases.

"The path of disinflation is not just a projection; it is our measure of success. We are determined to achieve this," she said.

Outlook revisal

Coinciding with the meeting was Moody's decision on Friday to revise Türkiye's outlook to positive from stable, citing the decisive change to the country's monetary policy.

The ratings agency said the policy pivot now improves the prospects for bringing down the country's high inflation rates to more sustainable levels.

"While headline inflation is likely to rise further in the near term, there are signs that inflation dynamics are starting to turn, indicative of monetary policy regaining credibility and effectiveness," Moody's said.

Moody's maintained the rating on Türkiye's government debt at "B3."

Turkish officials have been criticizing credit rating agencies and called for a ratings upgrade.

Fitch Ratings lifted Türkiye's credit outlook to stable from negative in September. It affirmed its debt grade at "B," five notches below investment grade.

In December, S&P Global Ratings raised the country's rating outlook to positive from stable and affirmed its sovereign rating at "B."

Türkiye's credit default swaps (CDS), a key risk measure, plunged to less than half of levels in May and central bank reserves recently hit a record of over $145 billion.

Data by the Institute of International Finance last week showed foreign investors added some $5.4 billion in exposure to debt and equity portfolios in Türkiye in the last two months of last year, the largest such inflow in five years.

Earlier this month, U.S. investment giants Pimco and Vanguard said they returned to the Turkish market and bought local Turkish assets recently, betting that the country will maintain high interest rates.

Remarks by top money managers at the companies show that two of the world's biggest investors, which together oversee nearly $10 trillion in assets, have grown constructive on Türkiye after the policy pivot.

The foreign interest is primed to grow, drawn by potentially outsized bond returns. Amundi, Europe's largest asset manager, has also taken a more bullish position on Turkish assets, Reuters reported.

Wall Street bank JPMorgan said Türkiye's lira was a key emerging market bet for 2024, while UBS recommended clients take a "tactical long" position on the currency in November.