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On Friday, Turkey’s central bank Governor Fatih Karahan emphasized a data-driven approach to monetary policy, indicating that the bank is not operating on "autopilot" following two consecutive rate cuts. This announcement comes as the bank revised its year-end inflation forecast upward to 24% from the previously projected 21%.
During a press conference in Istanbul, where the bank presented its quarterly inflation report, Karahan conveyed that future rate adjustments would be contingent on economic indicators. "We can pause or change the size of policy rate moves," he stated, underscoring that the recent rate cuts were made in response to the data.
The central bank’s stance appears hawkish amid a backdrop of declining inflation and interest rates, with authorities suggesting an impending resolution to prolonged economic instability. Recent data revealed a surge in monthly inflation to 5.03% in January, influenced by a rise in the minimum wage and new-year price adjustments. However, annual inflation has decreased from a peak of over 75% in May to 42.12% in January.
Karahan also noted that while the bank’s end-2026 inflation forecast remains at 12%, it has established an end-2027 forecast of 8%. The bank initiated an aggressive monetary tightening cycle in June 2023, which included rate hikes totaling 4,150 basis points, peaking at 50% in March of the previous year. This marked a significant shift from previous policies that favored low rates to encourage growth.
Following reductions of 250 basis points each in December and January, the policy rate now sits at 45%. It is anticipated to decrease to 30% by year’s end. President Tayyip Erdogan, who had previously been perceived as influencing monetary policy and whose endorsement of unconventional strategies led to currency devaluation and inflation spikes, has expressed support for the current policy direction.
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