The Turkish Central Bank (TCMB) has maintained its tight monetary policy stance, citing the need to achieve lasting disinflation and price stability. The bank’s Governor, Fatih Karahan, announced that they predict inflation to reach 24% by the end of 2025, while maintaining their forecast of 12% for the end of 2026. The TCMB also set a target of 5% inflation in the medium term.
Karahan highlighted the continued disinflation process, with consumer inflation falling to 42.1% in January. He attributed this decline to the tight monetary policy, which has led to a stabilization of the Turkish Lira and a decrease in inflation expectations. The TCMB also noted a significant improvement in the current account balance, with the current account deficit decreasing to 0.7% of national income in the third quarter of 2024.
The TCMB’s policy rate remains at 45%, having been lowered from 50% in December. The bank emphasized that this decision was made to maintain the necessary tightness while ensuring a gradual disinflation process. The TCMB also announced that they have started conducting 4-week repo auctions, aiming to extend the maturity of sterilization operations.
The TCMB has been actively reducing the balance of the Turkish Lira Protection Mechanism (KKM), which has decreased to $29 billion from over $140 billion in August 2023. The bank expects this reduction to strengthen the monetary transmission mechanism and reduce risks on the central bank’s balance sheet.
The TCMB’s latest inflation forecasts reflect the bank’s commitment to achieving price stability. The bank’s tight monetary policy, coupled with the ongoing disinflation process and the reduction of the KKM balance, suggests a continued focus on controlling inflation in the Turkish economy.