Economy in Turkey: Central Bank Raises Year-End Inflation Forecast

Fatih Karahan Announces the Final Inflation Report of 2025

Central Bank Governor Fatih Karahan presented the final Inflation Report of 2025, announcing that the year-end inflation forecast range has been revised upward from 25–29% to 31–33%. The interim target for 2025 remains at 24%. For 2026, the interim target stays at 16%, with the forecast range unchanged at 13–19%.

Gradual Results from Tight Monetary Policy
Karahan said the Central Bank continues to see gradual results from its tight monetary policy. Although the disinflation process that started in June 2024 has slowed recently, he emphasized that new measures will ensure inflation remains aligned with interim targets.

Global Disinflation Loses Momentum
He noted that global uncertainty remains above historical averages and that the worldwide disinflation trend has lost some speed. Despite differences between countries, interest rate cuts are expected to continue in several economies.

Domestic Demand Losing Momentum
According to Karahan, domestic demand continues to weaken. When adjusted for seasonal factors, card spending remains low and relatively flat during the third quarter. This trend indicates that the disinflation process has slowed down in recent months.

Core Inflation Indicators Signal a Slowdown
The main inflation indicators suggest that the disinflation trend has decelerated. Food prices played a key role in pushing inflation above the forecast range in the last two months. Despite this, the Central Bank expects disinflation to continue for the rest of the year.

Persistent Service Inflation
Service inflation remains sticky due to categories like education and rent, where prices are often indexed to past inflation. Education inflation has eased compared to last year but remains high, while rent inflation has slowed recently yet remains more resilient than expected.

Expectations Adjusting Slowly
Twelve-month-ahead inflation expectations have improved at a slower pace compared to the previous report. Karahan expressed confidence that these expectations will continue to improve thanks to consistent monetary policy and declining inflation figures.

Credit Growth and Deposit Composition
He said credit growth remains consistent with disinflation goals, and Turkish lira-denominated loans continue to dominate. The share of Turkish lira deposits hovers around 60%, near its historical average. The recent rise in foreign-currency deposits is mainly linked to higher gold prices.

End of FX-Protected Deposits in Sight
Karahan highlighted that FX-protected deposit (KKM) balances, which exceeded $140 billion in August 2023, have dropped below $4 billion. By the end of this year, most of these accounts will be closed. This reduction has strengthened monetary transmission and reduced risks to the Central Bank’s balance sheet.

Reserves Remain Strong
He added that the country’s reserves continue to show a positive trend, further supporting financial stability.

Outlook and Policy Stance
Karahan reaffirmed that the Central Bank will maintain a tight monetary stance until inflation is brought in line with its targets. Policy rate decisions will continue to be based on inflation outlooks, using a cautious and meeting-by-meeting approach.

Price stability, he said, is the foundation for sustainable growth and social welfare. The Central Bank remains committed to doing whatever is necessary to bring inflation down in line with interim targets for 2025, 2026, and 2027, set at 24%, 16%, and 9% respectively.

Keywords: #Turkey #CentralBank #FatihKarahan #Inflation #Forecast #Economy #MonetaryPolicy #Disinflation #InterestRates #Finance #Macroeconomics #CreditGrowth #PriceStability #Lira #Currency #EconomicOutlook #GoldPrices #Deposits #PolicyRate #FinancialStability