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Türkiye’s disinflation path remains intact, but upside risks are still “alive,” the central bank governor said on Friday, reiterating the monetary authority’s commitment to a tight policy stance until price stability is achieved.
Fatih Karahan’s remarks came a day after the Central Bank of the Republic of Türkiye (CBRT) cut its key interest rate for the second consecutive month as inflation continued to ease.
The bank lowered its one-week repo rate by 250 basis points to 40.5%, citing a slowdown in the underlying trend of inflation. That marked a slowdown in its easing cycle after a 300-basis-point cut in July.
The monetary policy will remain restrictive for as long as necessary, Karhan signaled on Friday, according to his presentation at the Türkiye Macro Conference 2025, organized by Bank of America in Istanbul.
“The tight monetary policy stance … will strengthen the disinflation process through demand, exchange rate and expectation channels,” he said.
Türkiye’s annual inflation eased further to 32.95% in August, down from 33.52% in July, official data showed last week, though food and services prices continue to pressure prices.
Karahan said the CBRT will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets.
“The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” he noted. “Monetary policy stance will be tightened in case of a significant deviation in inflation outlook from the interim targets.”
Karahan pointed to strong demand for the Turkish lira, saying macroprudential measures and robust foreign reserves are supporting the reversal of dollarization.
He reiterated that high-frequency data indicate a continued moderation in demand, with a broad range of indicators suggesting that economic activity is softening.
Official data last week showed the economy grew by a stronger-than-expected 4.8% year-over-year in the April-June period, despite a prolonged monetary tightening effort.
Private consumption growth, Karahan said, has been weaker than overall gross domestic product (GDP) growth. He said demand is at disinflationary levels and consumption has now fallen for two consecutive quarters.
According to Karahan, imports lost momentum after picking up in the April-June period, retail sales also pointed to a continued slowdown in demand, and card spending continued to moderate in the third quarter.
Karahan said the fall in inflation continues “across the board,” citing an improving underlying trend, but cautioned that upside risks “are alive.”
He said adverse weather conditions had a negative impact on food prices and rents and education drove services inflation up, while inflation expectations have improved, but are still elevated.
“Underlying inflation indicators point to continued progress on disinflation,” he said, but added that inflation expectations and pricing behavior “continue to pose upside risks.”
Separate data on Friday showed market participants’ expectations for inflation in Türkiye in 12 months’ time dropped in September to 22.5%, compared to 22.84% in August.
Year-end expectations rose slightly to 29.86%, versus 29.69% in the previous month, a survey by the CBRT said.
Market participants see inflation falling to 16.78% two years from now, a decline from the 16.92% expectation in the August survey.
Annual inflation has dipped from as high as 75% last year and the CBRT estimates it will fall to about 24% by the end of this year, with a forecast range of 25%-29%.
Policymakers are aiming to cut it to 16% by the end of next year and 9% by end-2027, according to the central bank estimates.
