In the presentation of the second Inflation Report of 2024, Governor of the Central Bank of the Republic of Turkiye, Fatih Karahan, announced that the year-end inflation forecast was increased to 38%. In the previous report, the 2024 year-end inflation forecast was stated as 36%.
Fatih Karahan, Governor of the Central Bank of the Republic of Turkiye (CBRT), is presenting the ‘Inflation Report 2024-II’. Highlights from Karahan’s speech are as follows:
CBRT’S MAIN PURPOSE: PRICE STABILITY
The main aim of our Central Bank is to ensure and maintain price stability. We closely follow pricing behavior and inflation expectations.
We are determined to maintain our tight monetary policy stance until inflation falls to levels consistent with our targets. We will definitely not allow a permanent deterioration in inflation expectations.
A limited increase in global growth is expected in 2024. There has been a widespread increase in commodity prices recently.
Geopolitical developments and tight policy are prominent global risk factors. Global inflation continues to remain above targets, and central banks maintain monetary tightness.
Expectations that the central banks of developed countries will cut interest rates later and slower have strengthened. Recently, portfolio outflows from developing countries have been observed.
EMPHASIS ON NORMALIZATION SIGNS
While resistance in domestic demand continues, there are some signs of normalization. The negative contribution of net exports to growth decreased.
We closely monitor the effects of monetary tightening on domestic demand through various indicators. Supply conditions follow a more moderate course compared to demand conditions.
- PMI data point to a moderate weakening in production in the second quarter.
- Aggregate demand conditions remain at inflationary levels
- The output gap will be a key component of the disinflationary process
- The improvement in the current account balance continues
- Tight monetary policy will balance demand
We predict that in the second half of the year, there will be a weakening in domestic demand due to the delayed effect of monetary transmission, and the improvement in the current account balance will continue.
CONSUMER INFLATION IS OVER THE FORECAST RANGE
Consumer inflation was above the predicted forecast range. Inflation indicators point to a decline in the main trend. Inflation finished at 69.38% in April, 0.9 points above the forecast range.
Contrary to our predictions, total demand conditions remained strong in the first quarter of the year and credit conditions increased. Real wage increases supported demand.
The role of service prices in the high trend in the main trend is evident. We see that price increases in the services group have been stronger recently compared to other groups.
Although services inflation slows down on a monthly basis, it remains high. In developed countries, services inflation is also above headline inflation.
THE INCREASE TREND IN HOUSING PRICES IS SLOWING DOWN
We closely follow the developments in the housing market as a leading indicator. The upward trend in house prices is slowing down.
The increasing trend of housing prices is below the increasing trend of consumer prices. We evaluate that the slowdown in house prices may limit the rent increase with a delay in the future.
WE EXECUTE THAT THE DIFFERENCE BETWEEN MARKET EXPECTATIONS AND OUR TARGET WILL CLOSE
The impact of monetary tightening on expectations is closely monitored. Convergence of inflation expectations to the forecast range is critical for disinflation.
We anticipate that our decisions will lead to an improvement in inflation expectations and that the gap between market expectations and our interim target will be closed.
The monetary stance has been significantly tightened. Steps have been taken to support and strengthen the monetary transmission mechanism.
Excess liquidity is sterilized through quantitative tightening. We will follow liquidity developments closely and use sterilization tools effectively when necessary.
Monetary tightening reflects quickly and strongly on financial markets
The level of loan interest rates will support the slowdown in domestic demand. Consumer credit growth is weakening.
TL DEPOSIT SHARE CONTINUES TO INCREASE
The latest issue shows that the transition from foreign currency deposits to TL deposits is accelerating. Our monetary policy stance and macroprudential framework will ensure that deposit interest rates remain at levels that will support the transition to TL and savings will increase.
TL deposit share continues to increase. We observe that foreign currency loans have increased recently. While the share of TL deposits increased from 32% to 44% in the last eight months, the share of KKM decreased from 26% to 14%.
Source: Patronlardunyasi / Prepared by Irem Yildiz