New Turkish central bank chief stands firm on monetary policy amid inflation woes

Head of Türkiye’s central bank Fatih Karahan announces the bank’s commitment to maintaining monetary tightness to achieve inflation targets

The newly appointed governor of the Central Bank of the Republic of Türkiye (CBRT), Fatih Karahan highlighted Thursday the bank’s determination to uphold monetary tightness.

Karahan underscored the bank’s determination to uphold monetary tightness until inflation levels align with their targets, emphasizing that there would be no deviation from the inflation forecasts previously announced. 

The end-of-2024 inflation forecast remains steady at 36%, with a significant reduction anticipated by the end of 2025 to 14%.

“We will not allow any deterioration in the inflation outlook,” said Karahan.

“Our policies have begun to show their effects, inflation will decrease permanently, and price stability will be permanently achieved,” Karahan stated, highlighting the medium-term goal of aligning inflation with projected paths.

2023’s year-end inflation was in line with the bank’s forecasts, he stressed.

The annual inflation rate in December was 64.77%.

Karahan also pointed to the recent improvements in Türkiye’s foreign trade and current account balance, attributing these positive developments to the bank’s monetary policies.

Despite challenges such as persistent service inflation and high rent increases, the bank remains vigilant, particularly in the housing market, where price hikes in major cities have begun to moderate.

Looking ahead, the CBRT maintains its inflation forecasts, with expectations that inflation will peak in May before entering a disinflation period in the latter half of 2024. 

The bank anticipates inflation to drop to single digits by 2026, ultimately reaching the 5% target in the medium term.

As part of its strategy, the CBRT has observed a resurgence in Turkish lira deposit rates, signaling a strong shift toward local currency deposits and away from foreign currency holdings.

This move is supported by recent regulatory changes aimed at bolstering the share of TL deposits and facilitating the transition from protected deposit schemes to more traditional deposits. This also strengthens monetary transmission.

Karahan’s mission

Karahan’s message was clear, the CBRT is prepared to adjust its policies as needed but does not currently see the necessity for additional interest rate hikes.

The central focus remains on price stability, with the bank firmly positioned to navigate the challenges ahead through proactive and rigorous monetary management.

Source: Newsroom

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