Turkish Central Bank’s Inflation Outlook
The Turkish central bank governor, Fatih Karahan, has predicted that inflation over the next two months might be "noisy." However, he also indicated that lower inertia in services will support disinflation in 2026. This statement was made in a presentation released on Thursday, which covered remarks made in London and New York on January 13-14.
Presentation to Investors
Karahan delivered presentations on the Turkish economy to investors at meetings held with international investment banks and financial institutions. Treasury and Finance Minister Mehmet Şimşek also traveled to London and New York to attend the "Türkiye Investment Conference" and hold one-on-one meetings with senior executives, chief economists, and analysts of global investment firms.
Monetary Policy Stance
According to the presentation, Karahan reiterated that a tight monetary policy stance will be maintained until price stability is achieved. This stance will strengthen the disinflation process through demand, exchange rate, and expectation channels. The central bank will determine the policy rate by taking into account realized and expected inflation.
Policy Rate Determination
The committee will determine the policy rate by considering realized and expected inflation and its underlying trend. This will ensure the tightness required by the projected disinflation path in line with the interim targets. The step size will be reviewed prudently on a meeting-by-meeting basis, with a focus on the inflation outlook.
Inflation Expectations
Karahan also mentioned that inflation expectations have improved, especially for households and businesses. Annual inflation in Türkiye dropped below 31% in December, marking the lowest since late 2021. Many underlying inflation indicators are at their lowest levels since September 2021.
Service Inflation
Service inflation, led by rents and education, has been seen as an area with the largest inertia. However, Karahan pointed out that lower inertia in services will support disinflation in 2026. The central bank has set its interim inflation target at 16% for the end of 2026, with a projected inflation range of 13% to 19% for 2026.
Upcoming Monetary Policy Committee Meeting
The central bank is set to convene for its first Monetary Policy Committee (MPC) meeting of the year next week. Most analysts expect it to continue the easing cycle, with a predicted interest rate cut of 150 basis points from 38% to 36.5%. The market expects the central bank to cut interest rates, with the lowest policy rate forecast at 36% and the highest forecast at 38%.
Conclusion
In conclusion, the Turkish central bank governor has predicted a potentially "noisy" inflation outlook for the next two months but expects lower inertia in services to support disinflation in 2026. The central bank will maintain a tight monetary policy stance until price stability is achieved, with a focus on realized and expected inflation. The upcoming MPC meeting is expected to continue the easing cycle, with a predicted interest rate cut. Overall, the Turkish central bank is working to achieve its interim inflation target and support economic stability.
