Turkish central bank introduces new interim inflation targets

Qatar Tribune

a day ago

Agencies
The Turkish central bank announced on Thursday interim targets for inflation as part of a new communication strategy, setting targets of 24% for the end of this year and 16% for the end of 2026.
Presenting the bank's third quarterly inflation report in Istanbul, Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan said inflation was currently projected to be between 25% and 29% in 2025 and between 13% and 19% in 2026.
Following the presentation on the global and domestic economic outlook, Karahan said that as of this inflation report, they have decided 'to change the framework for presenting medium-term forecasts.'
'We will present 'interim targets' that will not be changed unless extraordinary circumstances occur between report periods,' he added.
The governor explained two main concepts of the monetary authority's new approach as the 'forecasts,' which will be announced in inflation reports, and the 'year-end interim targets,' which he said will serve as 'a commitment and anchor.'
With the shift, the bank was keeping its earlier announced 24% end-2025 inflation forecast as its interim target for the year, Karahan said.
'We maintain the 24% inflation forecast for the end of 2025 as our interim target for that year.
For 2026 and 2027, we have set our interim inflation targets at 16% and 9%,' he noted.
Last month, the Turkish central bank lowered its key policy rate by 300 basis points to 43%, resuming a briefly paused easing cycle that it launched late last year as disinflation began to progress. Before the July cut, the bank had hiked its policy rate to 46% from 42.5% in April, reversing an easing cycle that had begun in December due to market volatility in March.
The annual inflation rate dropped to 33.52% in July – below market forecasts – sustaining a continued downward trend since the middle of last year, according to official data.
The governor, as part of his remarks, reiterated their readiness to maintain a tight monetary policy stance until price stability is achieved.
Answering questions from journalists, Karahan also said again that the bank 'was not in autopilot mode,' while highlighting policymakers' focus on data and the meeting-to-meeting approach.
The next monetary policy committee by bank is due on Sept. 11.
The CBRT chief said that in their decision-making, they look at various factors, including inflation expectations, realizations, and main trends. 'We've also been looking at risks to inflation lately,' he added.
At the same time, Karahan pointed out that inflation has fallen more than expected for three consecutive months.
Despite a positive trend in the headline inflation, Karahan also cited certain risks, including volatility in energy prices and climate-related factors such as drought and earlier frost.
Elaborating on the global outlook, he said that although the uncertainty around global trade policies has eased somewhat thanks to bilateral agreements, it remains elevated.
He also suggested that due to geopolitical developments, energy commodity prices have risen somewhat compared to the previous reporting period.
'On the non-energy side, industrial metal prices increased due to tariffs,' he also said.
Furthermore, detailing the factors related to domestic demand, including retail sales, card spending and general economic dynamics, the governor said that 'when considering the data on demand as a whole, the disinflationary impact of demand conditions increased in the second quarter.' He said that demand composition has become more balanced amid tight monetary policy.
Moreover, he also said that despite a slight increase in the second quarter, the current account deficit remained moderate in line with the domestic demand. Karahan informed that they estimated that the current account deficit-to-GDP ratio was around 1.3% in the second quarter.