Central Bank keeps inflation forecast unchanged for 2024

ANKARA

The Central Bank has kept its year-end inflation forecasts for 2024, 2025 and 2026 unchanged, vowing to maintain its cautious stance in monetary policy.

The bank projects that inflation will fall to 38 percent at the end of 2024, while its forecasts for 2025 and 2026 are 14 percent and 9 percent, respectively.

Annual inflation cooled from 71.6 percent in June to a nine-month low of 61.78 percent in July, with consumer prices advancing 3.23 percent monthly.

The bank targets inflation to stabilize at 5 percent in the medium term.

“We will maintain the tight monetary policy stance until a significant and sustained decline in the underlying trend of monthly inflation is achieved,” Governor Fatih Karahan said on Aug. 8 at a briefing on the bank’s Inflation Report in Ankara.

In the third quarter of the year, inflation will decline significantly, Karahan said.

He noted that the disinflation process began in June, saying that the bank will continue to do whatever is necessary to bring inflation down in line with its intermediate targets.

The bank’s 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, according to the governor.

Convergence of inflation expectations to the forecast range is of critical importance for disinflation, Karahan stressed.

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

 Demand conditions

The rebalancing in demand will continue and further strengthen, Karahan noted, adding that thanks to this rebalancing, the current account deficit continues to decline.

“We assess domestic demand to have slowed down in the second quarter, albeit still remaining at an inflationary level,” he said.

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

"They closely monitor and assess liquidity conditions by considering prospective developments, and they will continue to effectively implement sterilization by expanding our toolset whenever needed," Karahan stressed.

“Recent developments in loan growth confirm that financial conditions are tight enough to support the disinflation process,” he said.

“As of July 31, we reduced the Central Bank’s outstanding swap balance with local banks to zero,” he added.