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Monetary policy decision of Türkiye’s central bank will continue to be guided by inflation dynamics, its governor said on Wednesday, stressing that any future steps on interest rates will be taken with a cautious and meeting-by-meeting approach.
Speaking at an event in Ankara, Fatih Karahan said the tight monetary policy will be maintained until price stability is achieved. He said the stance, supported by demand rebalancing, real appreciation of the Turkish lira and improving inflation expectations, would underpin the country’s disinflationary path.
He added that coordination with fiscal policy would also contribute to this process.
Karahan’s remarks come a month after the Central Bank of the Republic of Türkiye (CBRT) returned to a rate-cutting cycle that was disrupted by political turmoil earlier this year. The bank lowered its one-week repo rate by 300 basis points to 43%, as inflation continued to slow under a tighter policy framework.
Next steps by the Monetary Policy Committee (MPC) will be determined by taking into account realized inflation, underlying trends and expectations, in a manner that ensures the level of tightness required by the projected disinflation path, the governor said.
“The size of the steps will be reviewed with a focus on the inflation outlook, on a meeting-by-meeting basis, and with a cautious approach,” Karahan noted.
He said all monetary policy tools would be deployed “effectively” if they observe a “significant and lasting deterioration” in inflation trends.
Latest official data showed inflation slowed to 33.5% in July, the lowest rate since November 2021, having peaked at 75% in May last year.
The CBRT had hiked the one-week repo rate to 46% from 42.5% in April and lifted its overnight lending rates to 49% following market volatility over the arrest in March of Istanbul Mayor Ekrem Imamoğlu.
Imamoğlu was jailed pending trial over graft charges.
Before April, the CBRT had gradually cut the rate from December as inflation eased.
Stating that the disinflation process is continuing uninterrupted, Karahan emphasized that shocks are not being allowed to disrupt it.
“We expect inflation to remain within our forecast range by the end of the year. The decline in inflation is continuing broadly across categories,” he added.
The central bank separated its official inflation target from its forecasts last month. It kept its target for this year at 24%, even though it is forecasting inflation of between 25% and 29%.
Previously, it presented the target as the midpoint of the forecast range. Separating the goal and the range could give markets a clearer indication of where policy might be heading.
The bank is aiming to cut inflation to 16% by the end of next year and 9% by end-2027, according to its estimates.
Karahan underlined that the greatest contribution to social welfare will be made by securing price stability, which also improves the investment and production environment.
He noted that monthly inflation rose temporarily in July, driven by rent and education components within services inflation.
“The rebalancing in demand is contributing to the decline in inflation. Inflation expectations of both consumers and firms have also entered a downward trend,” Karahan said.
A survey on Tuesday showed households’ expectations for inflation 12 months from now fell by 0.4 percentage points in August to 54.1%. That marks the lowest level since November 2021.
Market participants’ expectations dropped 0.6 percentage points to 22.8%, while the real sector’s outlook declined 1.3 percentage points to 37.7%, according to the survey.
The central bank has repeatedly cited expectations as one factor determining the course of its monetary policy.
On growth, Karahan said the economy was expanding at a moderate pace, with employment gains mainly stemming from the services sector.
He stated that the ratio of non-performing commercial loans remains below its historical average, while the ratio of bounced checks in July was close to its historical average.
Karahan also noted that the share of firms seeking concordatum (debt restructuring protection) in the economy remains relatively low.
