Central Bank head vows to maintain tight monetary policy

ANKARA

New Central Bank Governor Fatih Karahan has said that the bank will maintain its tight monetary stance until inflation falls to levels consistent with its target, while the bank has kept its inflation targets for 2024 and 2025 unchanged.

“We will be watchful of inflation expectations and pricing behavior. We stand ready to act in case of any deterioration in the inflation outlook,” Karahan said on Feb. 8, speaking at a news conference in Ankara to present the bank's quarterly inflation report.

It was Karahan’s first public appearance after he replaced Hafize Gaye Erkan, who resigned last week after less than a year in the job.

The bank has raised its main policy rate by a cumulative 3,650 basis points since June last year. It lifted the one-week repo auction rate by 250 basis points to 45 percent last month.

“While our policies are starting to yield results, we will maintain our policy stance until we achieve permanent price stability, lower inflation on the projected path, and bring sustainable price stability to our economy in the medium term,” Karahan said.

Tightening is working, the governor told reports, adding that they do not currently evaluate the need for an additional interest rate increase. “If the outlook deteriorates, we will review our decision.”

In the first half of the year, seasonally adjusted monthly inflation is expected to hover below 4 percent on average, according to Karahan.

“After May, we will enter a disinflation period in which we will see a rapid decline in annual headline inflation,” he said, adding that in this period, both the favorable base effects and, more importantly, the continued decline in the underlying trend of inflation will be effective.

The monetary tightness will be reassessed if a significant deterioration in the inflation outlook is foreseen, Karahan stressed.

In its quarterly report, unveiled on Feb. 8, the Central Bank has kept its inflation forecasts for 2024 and 2025 unchanged from the previous at 36 percent and 14 percent, respectively.

Inflation is projected to fall to single-digit levels and end 2026 at 9 percent, before stabilizing at the 5 percent target in the medium term, said the report.

The annual inflation in Türkiye accelerated from 64.77 percent in December 2023 to 64.86 percent in January, according to the latest official data.

The monthly inflation, which had started to come down since August last year, reserved course last month. Consumer prices increased by 6.7 percent monthly in January after rising 3.3 percent and 2.9 percent in November and December last year.