Turkish central bank expects rise in Turkish lira’s value, significant inflation drop in June

The President of the Turkish Central Bank, Fatih Karahan, delivered significant messages regarding the economy at the Arab Banking Summit.

Asserting the continuation of tight monetary policy, Karahan said: “We expect the Turkish lira to gain value in real terms and anticipate a substantial decline in headline inflation in June.”

“We believe that tightening will benefit the banking sector. Despite a high inflation environment, the banking sector continues to sustain profitability. We observe significant increases in Turkish liras deposits,” Karahan said.

Inflation to significantly decline in June

Karahan highlighted the vulnerability of economies to shocks due to trading in local currency.

“We expect a significant decline in headline inflation in June. Tight monetary policy will persist. We anticipate the Turkish lira will gain value in real terms,” Karahan said, addressing the inflationary situation in Türkiye.

Banking sector sustains profitability

While expressing their belief in the benefits of tightening for the banking sector, Karahan remarked, “Despite a high inflation environment, the banking sector continues to sustain profitability. We observe significant increases in Turkish liras deposits.”

‘Our policy to support the banking sector’

Karahan stated that the banking sector would benefit from the disinflation process, saying: “As normalization progresses, banks must take on more burden in managing their balance sheets. The share of ₺ deposits in the banking system increased from 31% in August 2023 to 45%. Despite a high inflation environment, the banking sector continues to sustain profitability. There is a conducive environment for the sector’s growth.”

“Our monetary policy approach will continue to support the banking sector. The regulations we implement will facilitate the sterilization of excess ₺ liquidity, support the transition to ₺ deposits, and prevent excessive credit growth,” Karahan added.