Central Bank lifts inflation forecast to 38 percent for 2024

ANKARA

Türkiye’s Central Bank has lifted its inflation forecast from a previous 36 percent to 38 percent for the end of 2024, while Governor Fatih Karahan has vowed that “they will definitely not allow a permanent deterioration in the inflation outlook.”

The bank, on the other hand, kept is inflation forecasts for 2025 and 2026 unchanged at 14 percent and 9 percent, respectively. The bank expects inflation to stabilize at 5 percent in the medium-term.

“We are determined to maintain our tight monetary policy stance until inflation falls to levels consistent with our target,” Karahan said on May 9, unveiling the bank’s quarterly inflation report.

Although the underlying inflation declined, it remained above the path the bank had projected in the first inflation report of the year, Karahan said.

The annual inflation rate accelerated from 68.5 percent in March to 69.8 percent in April, while consumer prices rose 3.18 percent monthly after increasing 3.16 percent.

“As we begin the process of disinflation in June, we will continue to do whatever is necessary to bring inflation down in line with our intermediate targets,” Karahan said.

Medium-term forecasts are based on an outlook in which both the tight monetary policy stance and the coordination of economic policies will be maintained until a significant improvement is achieved in the inflation outlook, according to the bank governor.

[HH] Macroprudential policies

Against the divergence in expectations of economic units and possible volatilities, the bank continues to implement macroprudential policies to enhance the effectiveness of monetary transmission, Karahan also said, stressing that they closely monitor the impact of monetary tightening on domestic demand using a variety of indicators.

“We project that the lagged effects of the monetary transmission will lead to a weakening in domestic demand in the second half of 2024, and as a result, the improvement of the current account balance will continue,” he added.

The bank’s monetary policy stance and the macroprudential framework will ensure that deposit rates remain at levels that will support the transition to the Turkish lira, and boost savings, according to Karahan.

The additional monetary tightening delivered in the March meeting fostered the confidence of resident and non-residents to the Turkish Lira and bolstered reserves, he said.

“When we look at net reserves excluding swaps as of today, we see an additional improvement of $18 billion dollars in the last two weeks. Thus, net reserves excluding swaps increased by a total of $34 billion dollars in this period,” Karahan said.