Central Bank raises inflation forecasts for 2024 and 2025

ANKARA

Türkiye's Central Bank has raised its year-end inflation forecast for 2024, 2025 and 2026.

Annual consumer inflation is projected to reach 44 percent this year, from the previous forecast of 38 percent, Governor Fatih Karahan said at a meeting on Nov. 8 to present the bank’s fourth and final inflation report of the year.

The year-end inflation forecast for 2025 was raised to 21 percent, up 7 percentage points from the previous report.

"We foresee that inflation will decline to 12 percent in 2026," Karahan said, adding that inflation is targeted to stabilize at 5 percent in the medium term.

The previous projection for 2026 was 9 percent.

Consumer inflation decreased to 48.6 percent in October, significantly down from the peak level in May, Karahan recalled.

The medium-term forecasts are based on an outlook in which the tight monetary policy stance will be maintained until a significant and sustained improvement is achieved in the inflation outlook, and the economic policy coordination will continue progressively, Karahan reiterated at the press meeting.

“Our decisive monetary policy stance will support the downtrend in the monthly underlying inflation amid the rebalancing in domestic demand, the real appreciation in the Turkish Lira and the improvement in inflation expectations,” the governor added.

He said that all sectors gradually lower their expectations in tandem with the fall in headline inflation, with the industrial sector pricing behavior of firms exhibiting a clear improvement.

“With our tight monetary policy stance, we are committed to ensuring that expectations are formed so as to contribute to the disinflation process,” Karahan added.

The improvement in underlying inflation continues, led by core goods, while the slowdown in services inflation lags behind the bank’s projections, according to Karahan.

Price increases in the services sector, excluding rents, lose momentum, he said, noting that leading indicators for rents suggest a slowdown in monthly rent inflation in the last quarter.

“We assess that domestic demand continued to decline and reached levels that support disinflation,” Karahan added.

He also said that the bank continues to implement macroprudential policies to enhance the effectiveness of monetary transmission.

“We believe that the narrowing of the output gap in the third quarter has continued into the last quarter of the year. As demand conditions weaken, the diffusion of price increases declines,” he said.

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

The building confidence in the lira among both residents and non-residents on the back of the tight monetary policy stance continues to have a positive impact on the bank’s reserves, he said.