Central Bank raises inflation forecast for 2025 to 24 percent

ANKARA

The Central Bank has lifted its annual consumer inflation forecast for 2025 from the previous 21 percent to 24 percent, as Governor Fatih Karahan has vowed to do “whatever it takes to bring inflation down.”

The forecast for 2026 was kept unchanged at 12 percent, Karahan said, adding: "We forecast inflation will ease to 8 percent by 2027,” with the long-term goal being to stabilize inflation at 5 percent.

Türkiye's annual inflation rate dropped to a 19-month low of 42.12 percent in January with consumer prices rising 5.03 percent from the previous month.

The forecast revision for 2025 was driven by factors that are relatively beyond the control of monetary policy, Karahan told a meeting held to release the bank’s first inflation report of this year.

“Thus, it does not signal any easing of the monetary policy stance,” the governor furthered.

“We will decisively maintain our tight monetary policy stance until decline in inflation is sustained and price stability is achieved” Karahan reiterated, saying that in the disinflation process, they will continue to do whatever it takes to bring inflation down in line with the bank’s intermediate targets.

The disinflation process continues, Karahan said, adding that macroeconomic indicators are also in line with this process.

Data on demand for goods and services as a whole suggest that demand conditions are at disinflationary levels, according to Karahan.

Domestic demand will remain balanced in response to the tight monetary policy,” he added.

He noted a significant decline in the inflation expectations of consumers and firms, saying, “Our decisive monetary policy stance will further improve expectations.”

Responding to a question regarding interest rates, Karahan said that the magnitude or number of rate cuts will depend on how the inflation outlook evolves.

“We are not on an autopilot mode [with cuts]. If the inflation outlook deteriorates, we will consider all options,” he said.

On Jan. 23, the bank slashed its policy rate by 250 basis points to 45 percent. It started the easing cycle in December when it delivered a 250 basis points cut.

The bank’s next rate-setting meeting is scheduled for March 6.

 Modest recovery in economic activity

Production indicators for the fourth quarter suggest a modest recovery in economic activity, Karahan also said.

In the upcoming period, the bank expects the current account deficit to widen, he added.

“However, it will be limited on the back of our tight monetary stance. We project that the current account deficit relative to GDP will remain below its historical average in 2025,” the governor said.

The bank’s monetary policy stance and macroprudential framework ensure that deposit rates remain at a level that supports the transition to the Turkish Lira and boosts savings, according to Karahan.

“Given the current level of FX-protected deposits (KKM), we plan to end this practice this year, giving priority to legal persons.