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CBRT: Inflation in Turkiye will fall rapidly after peaking in May

Stating that there will be a rapid decline in annual inflation after May, the new governor of the Central Bank, Fatih Karahan, made the following statement: “We will not allow any deterioration in the inflation outlook.”

Fatih Karahan, who was appointed as the president of the Central Bank of the Republic of Turkiye (CBRT), announced the first inflation report of the year. The bank did not change its inflation forecast. The forecast of 36% for 2024, 14% for 2025, and 9% for 2026 was maintained. Karahan announced that monetary policy has reached the required level of tightness and that the policy rate will remain at the current level as long as necessary, but if the inflation outlook deteriorates, tightening may be made again. Karahan said, “Our goal is to reduce inflation to our targeted path. We are determined to maintain monetary tightness until it falls to a level compatible with our target. We will not allow any deterioration in the inflation outlook.” Emphasizing that the balancing process in demand has begun with the effect of tightening, Karahan said, “Retail sales are still resilient. The import trend has weakened recently. Gold imports, which increased by 8.5% in the first half of 2023, decreased by 18.6% in the second half. Our monetary tightening process started to contribute to the current account balance through imports, especially gold and durable consumer goods. We foresee the continuation of the improvement in the current account balance.”


Emphasizing that the increase in the services group in January was slightly above expectations, and that the minimum wage increase above expectations played a role in this, Karahan said, “We predict that inflation will peak at 73% in May and decrease to 36% at the end of the year.” Karahan stated that it is too early to talk about an interest rate reduction and said, “We need to see that we can keep both the 2024 and 2025 inflation targets for the reduction. It is too early to talk about a reduction in expectations until service inflation reaches more reasonable levels.”

Stating that some temporary effects will be seen until the end of May, when inflation will reach its peak, as in January, Karahan said: “After May, we will enter a disinflation period in which we will see a rapid decline in annual headline inflation. In this period, positive base effects and the continuation of the decline in the main trend of inflation will be effective. The continuation of the balancing in domestic demand, the completion of wage updates and the additional improvement in expectations caused by the decrease in headline inflation will play an important role. Thus, we predict that the seasonally adjusted average monthly inflation will first drop below 2.5% and then drop to around 1.5% in the last quarter.” Karahan also emphasized that they are not considering the need for an additional interest rate increase at the moment.


Emphasizing that TL deposit interest rates showed a limited decline in January and that the latest regulation and leading data point to an increase in TL deposit interest rates again, Karahan said, “We will not allow any excesses that may occur in credit growth. As of August, there was a strong transition to TL deposits. We observed that the increase in the TL deposit share slowed down in January. We predict that the latest regulation will support the increase. Monetary tightening and simplification steps also had a positive impact on the bond market.”

CBRT President said that they will continue to closely monitor market conditions and strengthen reserves. Pointing out the importance of liquidity management, Karahan said: “We will continue liquidity sterilization. Warehouse tenders are also going very successfully.”


Providing information about the Monetary policy strategy, Karahan said, “We have implemented practices that support monetary tightening. In this context, we are sterilizing the excess liquidity in the banking system through quantitative tightening. Additionally, we implemented selective credit tightening to support the stabilization of domestic demand. Practices to reduce the KKM and increase the share of Turkish Lira deposits continue. In order to strengthen the monetary transmission mechanism, more than ₺1 trillion of liquidity has been sterilized through required reserve regulations as of July 2023.”


Karahan said, “The decrease in the pressure on rents will play an important role in service prices. The high increase in housing prices is reflected in the rents in a delayed and high way. After the tightening, the rate of increase in housing rents slowed down in big cities. The slowdown in the rate of increase in housing prices will contribute to disinflation through rent and service inflation.”

Source: Sabah / Prepared by Irem Yildiz

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