Central Bank announced its year-end inflation forecast

Central Bank announced its year-end inflation forecast

Fatih Karahan, the new president of the Central Bank of the Republic of Turkey (CBRT), appeared in public for the first time for the first Inflation Report of 2024.

CBRT President Fatih Karahan presented the first Inflation Report of the year.

The highlights of Fatih Karahan’s statements are as follows:

“As the Central Bank, we will continue our efforts to establish disinflation with determination, together with our strong team.

We are determined to maintain monetary tightness until inflation reaches levels compatible with our targets. We closely follow inflation expectations and pricing behavior. We will definitely not allow any deterioration in the inflation outlook.

WE WILL REACH PRICE STABILITY

By maintaining our policy stance until we achieve permanent price stability, we will reduce inflation to the path we predict and bring our economy to permanent price stability in the medium term.

Globally, the timing and speed of interest rate cuts in the coming period have become important. It is evaluated that Central Banks will continue their reduction processes gradually and monetary tightness will be maintained on a global scale.

IMPORT TREND HAS DECREASED

The import trend has weakened recently. The increase in automobile imports also slowed down in this period.

Provisional data for January shows that the improvement in foreign trade trends continues. We foresee continued improvement in the current account balance.

PRICE INCREASE RATE IN HOUSING HAS SLOWED DOWN

High rates of increases were observed in service prices in January. Rents are an important reason for the rigidity in services inflation and are closely monitored as an indicator. The decrease in pressure on rents will play an important role in service prices.

The high increase in housing prices is reflected in the rents in a delayed and high way. After the tightening, the rate of increase in housing rents slowed down in big cities. The slowdown in the increase in housing prices will contribute to reducing the inertia in service prices.

INFLATION TREND WILL WEAKEN

We find it important for the course of monetary policy to see a significant improvement in the underlying trend of inflation, consistent with our targeted path. We evaluate that the main trend of inflation will weaken after the rise in January. We will be closely monitoring the effects of wage adjustments on demand.

WE ARE DETERMINED TO MAINTAIN OUR MONETARY STANCE

With our tightening steps, demand has started to stabilize in Turkey. We are determined to maintain our monetary stance to ensure that domestic demand moves towards disinflation.

PRACTICES TO DECREASE KKM

Implementations to reduce KKM and increase the share of TL deposits continue. The TL warehouse purchase tender balance, which was 290 billion TL as of the end of 2023, decreased to 100 billion TL as of February 5, after increasing to 603 billion TL in January.

WILL INTEREST RATES INCREASE?

The current level of policy interest will be maintained as long as necessary. There are two conditions here. The main trend of monthly inflation shows a significant decline. The second is the convergence of inflation expectations to the predicted forecast range. If there is a significant deterioration in inflation, monetary tightness will be reviewed.

INFLATION FORECAST HAS NOT CHANGED

Year-end inflation forecasts for 2024, 2025 and 2026 have been preserved as in the previous report. The end of 2024 forecast remains at 36 percent, and the end of 2025 forecast remains at 14 percent.

The lower and upper points of the forecast ranges correspond to 30 and 42 percent for 2024 and 7 and 21 percent for 2025.

WE WILL ENTER THE DISINFLATION PERIOD AFTER MAY

Some temporary effects will be seen until the end of May, when inflation will see its peak, as in January. After May, we will enter a period of disinflation in annual headline inflation.

“The level of stringency and the tools we have will ensure that the transition to TL deposits continues in this way.”

Central Bank Governor Fatih Karahan answered journalists’ questions after the presentation.

ANSWERED JOURNALISTS’ QUESTIONS

He answered the question about whether he would take a hawkish stance on the policy rate as follows:

“Our first goal is price stability. We want to reduce inflation to the desired level this year and pave the way for disinflation in 2025. We will take the necessary steps for this. Our evaluations show that the tightening is working. We do not currently evaluate the need for an additional interest rate increase. But if the outlook deteriorates, we will review our decisions.”

Karahan, “Could it be a new step for investors and banks for KKM with foreign currency conversion?” “We do not have a plan to reduce the required reserves. We will see the effects of the latest regulations.” he replied.



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