Türkiye cenbank inflation forecasts unchanged, vows tight policy

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The Central Bank of the Republic of Türkiye (CBRT) has left its mid-point inflation forecasts for end-2024 and end-2025 unchanged at 38 per cent and 14 per cent, respectively, governor Fatih Karahan said on Thursday, vowing to maintain a tight monetary policy stance.

In a briefing on the bank’s latest quarterly inflation report, Karahan said that inflation was projected to fall to 9 per cent by the end of 2026.

“We will decisively maintain our tight monetary policy stance until price stability is achieved,” he said. “By maintaining the cautious stance in monetary policy, we envisage that inflation will decline steadily in the rest of the year.”

Türkiye’s annual consumer price inflation eased to 61.78 per cent in July, accelerating what is expected to be a sustained slide. Economists see end-year inflation around 42 per cent.

The bank has raised its policy rate by 4,150 basis points since June last year but has kept it unchanged at 50 per cent since March to allow the tightening to have an impact.

Karahan said a tight monetary policy stance could be maintained even when the time comes for rate cuts.

“We need to maintain the tight stance for a long time. This does not mean that interest rates will never be cut. A tight stance can be maintained with rate cuts,” he said.

The lira was largely flat at TRL33.5225 to the dollar after his comments, having touched a record low of TRL33.6700 earlier this week.

Türkiye monetary policy outlook

Karahan said the bank’s “decisive” monetary policy stance would support the downtrend in monthly underlying inflation amid rebalancing domestic demand, real appreciation of the lira, and improvement in inflation expectations.

“The convergence of inflation expectations to the forecast range is of critical importance for disinflation,” he added.

In its last quarterly report in May, the bank raised its year-end inflation forecast to 38 per cent from 36 per cent due to an unexpectedly large rise in the first four months of the year.

The tightening cycle over the last year marked a stark turnaround after years of unorthodox economic policy under President Tayyip Erdogan, who in the past urged low rates despite rising prices.

On July 26, deputy governor Cevdet Akcay told Reuters that the bank was not even considering a rate-cutting cycle at this time as easing too early could reignite inflation and extend the pain for an economy on the verge of disinflation.

As it seeks to cool the economy, the bank is also rebuilding foreign reserves which had plunged under previous economic programmes that had sought to stabilise the lira.

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