Türkiye’s central bank raises inflation forecasts, vows tight policy

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Türkiye’s central bank raised its year-end inflation forecasts for this year and next to 44 per cent and 21 per cent, respectively, on Friday. Governor Fatih Karahan vowed to keep policy tight to propel the disinflation process and hit targets.

The bank’s previous inflation report three months ago forecast year-end inflation of 38 per cent in 2024 and 14 per cent next year. The revision underlines its tougher-than-expected battle against inflation that began with aggressive rate hikes 18 months ago.

Presenting a quarterly update in Ankara, Karahan cited improvement in core inflation trends even as service-related price readings are proceeding slower than anticipated. But even in that sector, inflation is gradually losing momentum, he said.

“We will decisively maintain our tight monetary policy stance until price stability is achieved,” he said. “As the stickiness in services inflation weakens, the underlying trend of inflation will decline further in 2025.”

October inflation remained loftier than expected, dipping only to 48.58 per cent annually on the back of tight policy and so-called base effects, down from a peak above 75 per cent in May.

Monthly inflation – a gauge closely monitored by the bank for signs of when to begin rate cuts – rose by 2.88 per cent in the same period on the back of clothing and food prices.

Türkiye’s bank has hiked rates by 4,150 basis points between June 2023 and March 2024 to 50 per cent as part of an abrupt shift to orthodox policy after years of low rates aimed at stoking growth.

Türkiye’s President Erdogan pledges discipline

President Tayyip Erdogan, who in past years was viewed as influencing monetary policy, had supported the previous unorthodoxy. It triggered a series of currency crashes and sent inflation soaring.

Erdogan was quoted on Friday as telling reporters that “no one should doubt” the steady decline in inflation and that economic steps would continue with discipline and determination to ease price pressures.

The central bank warned last month that a bump in recent inflation readings increased uncertainty, prompting analysts to delay expectations for the first rate cut to December or January.

Karahan said the new inflation forecasts were based on maintaining tight policy, adding the bank would do “whatever is necessary” to wrestle inflation down and pointing to what he called a significant fall in the annual rate since May.

He said the slowdown in domestic demand continues at a moderate pace, and the output gap has continued to decline in the third quarter.

 Read: Türkiye’s central bank holds rate at 50%, warns on inflation