CBRT governor says Türkiye on verge of disinflation

The Turkish central bank’s governor on Friday said Türkiye is on the verge of disinflation and pledged to maintain the necessary resolve to achieve it.

“We will persist in maintaining the determination necessary for the realization of the disinflation trajectory,” Fatih Karahan, the governor of the Central Bank of the Republic of Türkiye (CBRT), told the Albaraka Islamic Finance Summit in Istanbul.

Karahan stressed they were aware that “establishing price stability” is the most significant contributor to societal well-being.

The inflation, currently running at nearly 70%, is expected to peak at as high as 75% in May, with a projected decline in headline inflation starting in June.

Officials and the central bank anticipate it will end the year at 38%.

“It is evident that inflation is the primary focus in our economy at present,” said Karahan, noting that headline inflation would peak in May due to base effects, followed by a significant decline,” and continued, “at this point, we are on the brink of disinflation. The fundamental determinant of our monetary policy stance will continue to be the alignment of the disinflation process with our path.”

Foreseeing a rapid decline in annual inflation from the summer months onward, Karahan noted that the downward trend would gain momentum alongside an improvement in the underlying trend of monthly inflation.

“In this context, we are pleased to observe a weakening in the main trend of monthly inflation, despite its high level,” said the governor.

Karahan reiterated the bank’s projections for inflation to decrease to 14% by the end of 2025 and reach single-digit levels in 2026.

“We will steadfastly maintain our tight monetary policy stance until a significant and sustained decrease in the main trend of monthly inflation is achieved and inflation expectations converge toward the targeted range,” he affirmed.

The central bank has raised its benchmark policy rate by 4,150 basis points in total since June last year to tackle runaway inflation, marking a shift from years of loose monetary policy.

On Thursday, it kept the one-week repo rate unchanged at 50% for a second consecutive month, as expected, but remained wary of inflation risks.

Karahan identified the key drivers of their envisioned deflation trajectory as “balance in domestic demand, improvement in inflation expectations, and a stable trend in the Turkish lira alongside increasing demand for lira-denominated financial assets.”

He also evaluated fiscal policies as supportive of the disinflation process.

Karahan emphasized the particular importance their policy toolset assigns to anchoring inflation expectations and balancing domestic demand.

He said this will contribute to a macroeconomic outlook characterized by price stability and a balanced growth composition, fostering increased savings, curbing excessive consumption, and reducing the current account deficit.