CBRT Governor Karahan on Inflation: “The Recent Rise Is Temporary”

Summary:

Central Bank of the Republic of Turkey (CBRT) Governor Fatih Karahan stated that the July spike in inflation was temporary, emphasizing that the disinflation process remains intact and that the tight monetary policy stance will be maintained. Speaking at the Ankara Chamber of Industry as part of the “Monetary Policy and Macroeconomic Outlook” series, Karahan reaffirmed the CBRT’s commitment to price stability and policy discipline.

Disinflation Remains Intact Despite July’s Inflation Spike

During his presentation, Karahan stressed that the CBRT’s tight monetary stance would continue until price stability is fully restored.

“The current stance will support disinflation through demand rebalancing, real appreciation of the Turkish lira, and improved inflation expectations,” Karahan said, adding that fiscal policy coordination would further strengthen the process.

He noted that policy rate decisions would be data-driven and inflation-focused, with the size and timing of rate adjustments determined on a meeting-by-meeting basis.

“All Tools Will Be Used If Needed”

Karahan highlighted that the CBRT is prepared to act decisively if inflationary pressures intensify:

“In the event of a significant and lasting deterioration in the inflation outlook, all monetary policy tools will be used effectively,” he stated.

He added that while housing and education costs continue to push services inflation higher, the broader disinflation process remains uninterrupted, supported by slowing domestic demand.

Monetary Policy and Credit Dynamics

Regarding lending activity, Karahan explained that loan interest rates are closely tied to inflation dynamics and market expectations:

• Loan rates → He warned that rate cuts would only be effective once inflation is under control.

• Market impact → As inflation expectations improve, both credit and bond yields are expected to decline.

• Loan composition → The share of long-term loans has increased during the tightening cycle.

Reserves Hit Record Highs

Karahan also provided updates on Turkey’s external balances and FX reserves:

• Current account deficit → Narrowed by $36 billion over the past two years, easing external financing pressures.

• Lira demand → Remains strong as the CBRT maintains its tight policy stance.

• KKM balances → Continue to decline, reflecting a shift toward lira deposits.

• FX reserves →

  • Gross reserves reached $176 billion

  • Net reserves (ex-swap) rose to $54.2 billion

Karahan said the strengthening of reserves demonstrates that the CBRT’s policy framework is supporting financial stability.

Outlook: Policy Discipline to Continue

Despite short-term price pressures, the CBRT expects domestic demand rebalancing and fiscal-monetary coordination to continue supporting disinflation. Karahan reiterated that the bank will remain cautious, prioritizing data-driven decision-making to maintain policy credibility.

Source: [Central Bank of the Republic of Turkey (CBRT)]