Turkish Central Bank’s Future Steps
The Turkish central bank governor, Fatih Karahan, has signaled a cautious approach to future monetary policy. This approach will be guided by the inflation outlook and will be assessed at each meeting. Karahan stated that the size of the steps will be reviewed with a cautious, meeting-by-meeting approach focused on the inflation outlook.
Current Inflation Outlook
The Turkish central bank resumed interest rate cuts in July with a 300-basis-point reduction, bringing the policy rate down to 43%. Markets anticipate another cut of the same size in September, according to the August Survey of Market Participants. Karahan stressed that the disinflation process, which began in June 2024, is continuing uninterrupted. The annual inflation rate fell for the 13th consecutive month, declining to 33.5% from a peak of 75.5% in May 2024.
Factors Affecting Inflation
Karahan explained that balanced demand has helped reduce price pressures, even though monthly inflation temporarily rose to 2.06% in July. The Central Bank of the Republic of Türkiye (CBRT) has regularly met with firms across various sectors to obtain timely and qualified information from the real sector. This provides input for their decisions and helps identify both cyclical developments and structural challenges. Since 2013, the CBRT has held 2,630 meetings with firms over the past five years, including 310 companies in Ankara and nearby provinces in 2025 alone.
Inflation Expectations
Karahan underlined that inflation expectations have begun to decline. As of August, the 12-month ahead inflation expectation stands at 54.1% for households, 22.8% for market participants, and 37.7% for the real sector. While rents and education costs continue to push up service inflation, the overall downward trend is now more widespread. On credit and corporate debt, Karahan emphasized that the share of companies requesting concordat is relatively small, pointing to limited systemic risk.
Monetary Policy Stance
The governor highlighted the steep fall in balances held under the government’s foreign exchange-protected deposit scheme, known as KKM, which is also set to be phased out by year-end. The balance fell from $143 billion in August 2023 to $11 billion by August 2025, a decrease of $132 billion. During the same period, the share of Turkish lira deposits rose to 60.4%, supported by the central bank’s tight policy stance, which kept the policy rate above 40% since November 2023.
Conclusion
In conclusion, the Turkish central bank’s future steps will be guided by the inflation outlook, and the bank will maintain a cautious approach to monetary policy. The disinflation process is ongoing, and inflation expectations are easing across all sectors. The central bank will continue to monitor the situation closely and adjust its policy stance as needed to achieve lasting price stability. Karahan reiterated the CBRT’s determination to maintain its stance until lasting price stability is secured, stating that all monetary policy tools will be used effectively if there is a clear and permanent deterioration in the inflation outlook.
