ANKARA  - Turkey's ‌central bank chief said market fallout from the Iran war is hurting its fight against inflation, and in ​such situations it is a "natural choice" to turn to gold-based transactions to support liquidity.

Governor Fatih Karahan told state-owned ​Anadolu Agency ​that the bank will maintain the needed tight policy to continue the disinflation process, which began in 2024 but had started slowing even before the war began a ⁠month ago.

Annual inflation edged up to 31.5% in February and year-end expectations have risen amid the war, largely due to soaring global energy prices.

In response, the central bank has halted its easing cycle with the main rate at 37%, lifted its overnight rate by ​about 300 basis points ‌to near 40%, ⁠and undertaken heavy ⁠sales and swaps of forex and gold reserves to support the lira currency.

Total reserves have dropped ​by roughly $55 billion in a month. In the last two weeks, ‌the central bank began swapping or selling billions of ⁠dollars worth of gold reserves, marking its most aggressive use of the precious metal since 2018.

"Using gold-backed transactions during periods when foreign exchange liquidity needs to be supported is a perfectly natural choice," Karahan told Anadolu on Tuesday.

He said the central bank is pursuing a "proactive, flexible, and controlled" approach to its reserve-management and liquidity tools.

Karahan and Finance Minister Mehmet Simsek will discuss their strategy on Wednesday and Thursday with foreign investors in London, where Barclays is hosting both group and one-on-one events, bankers said.

One investor who is attending ‌said they will likely face questions about monetary policy given Turkey's ⁠heavy reliance on energy imports and about the central bank's ​ability to sustain the slow, steady rate of lira depreciation. The investor declined to be named.

In its latest step, which aims to give lenders flexibility managing liquidity, the central bank restarted forex-based ​lira swap transactions with ‌buyside auctions worth $10 billion on Tuesday.

(Reporting by Nevzat Devranoglu and Can ⁠Sezer, Additional reporting by Marc Jones in ​London; Writing by Daren Butler; Editing by Jonathan Spicer and Arun Koyyur)