Breaking News… Turkey’s Central Bank Raises End-of-Year Inflation Forecast

February 7, 2025 BTT

"Share this post on social media, spread the news"

In a recent presentation, Central Bank Governor Fatih Karahan announced an increase in the 2025 year-end inflation forecast from 21% to 24%. However, the 2026 inflation forecast remains unchanged at 12%. Karahan emphasized during the Q&A session that “we are not on autopilot; we are data-driven. While we have a certain scope, it is important to remain cautious.”

In the 4th Inflation Report meeting of 2024, the Central Bank had already raised both the 2024 and 2025 year-end inflation forecasts to 44% and 21%, respectively. They forecasted inflation would decrease to 12% by 2026.

Highlights from Karahan’s speech:

Disinflation Process Continues: The disinflationary process is ongoing, with macroeconomic indicators aligned with this trend. Internal demand has reached a level that supports the decline in inflation, and the main trend of inflation is downward.
Monetary Policy: The tight stance on monetary policy will be maintained to support continued disinflation.
Global Uncertainty: There has been an increase in uncertainty around global trade policies.
Global Growth Outlook: A gradual recovery in global growth is still expected. However, global trade policy uncertainty has increased recently.
Energy Prices: Energy prices have exhibited volatility in recent times.
Global Central Banks: Central banks are reducing monetary tightness in response to inflation trends. Market pricing suggests that both developed and developing countries are likely to cut interest rates more slowly in 2025.
Current Account Deficit: An increase in the current account deficit is anticipated but is expected to remain limited due to the tight monetary stance.
Second-Quarter Inflation: Inflation is expected to slow down again in the second quarter after an increase in the first quarter. Service inflation is gradually losing momentum.
Rental Inflation Slowing: Although rental inflation remains high, it is showing signs of slowing down. The January rise in rental inflation is attributed to higher renewal rates in lease contracts.
Producer Price Weakening: The weakening of producer inflation is having a positive effect on inflation in basic goods. Both consumer and firm inflation expectations are trending downwards.
Monetary Tightness Maintained: The Central Bank plans to continue maintaining a firm stance on monetary policy, which supports expectations of inflation control.
Currency Transition: The Central Bank continues to support the transition to the Turkish Lira (TL) through deposit interest rates and savings incentives.
KKM (Foreign Exchange-protected Deposits): There has been a decrease in KKM, but the demand for TL remains strong. The Central Bank plans to phase out the KKM program later in the year, prioritizing legal entities.

Inflation Forecast Raised: The inflation forecast for the end of 2025 has been raised to 24% (from the previous 21%). The forecast for the end of 2026 remains unchanged at 12%, with the forecast for 2027 at 8%. Inflation is expected to stabilize and gradually move toward the medium-term target of 5%.

Reason for Revision: The revision in inflation forecasts is primarily driven by factors outside the influence of monetary policy, such as food prices and administered prices, meaning there is no indication of easing the current monetary policy stance.