Central Bank Chief Karahan Signals Continued Tight Policy Until Inflation Stabilizes

Turkish Central Bank Governor Fatih Karahan said the monetary authority will maintain its tight policy stance until price stability is fully restored, noting that disinflation continues but at a slower pace. Speaking in Istanbul, Karahan pointed to weakening demand, improving inflation expectations and normalization in the labor market, while warning that any significant deviation from interim inflation targets may prompt further tightening.

Disinflation Progresses, but Loses Momentum

Turkey’s Central Bank Governor Fatih Karahan delivered a presentation titled “Monetary Policy and Inflation Outlook in Turkey” in Istanbul, offering an updated assessment of price dynamics and economic conditions.

Karahan said disinflation is ongoing yet moving “at a slower pace.” He noted that temporary factors are expected to fade, but adverse weather conditions have recently pushed food prices higher.
Seasonal effects remain strong in the clothing category, while rent inflation continues to soften.

Core Indicators Show Slower Improvement

Karahan emphasized that core inflation indicators still point to a downward trend but show signs of deceleration.

Inflation expectations have improved across surveys, though overall levels remain high. The dispersion of expectations among participants has narrowed, which Karahan interpreted as a sign of increasing alignment.

The governor also noted a decline in pessimism among market participants and said corporate pricing behavior continues to improve.

Economic Activity Weakens as Consumption Cools

The governor highlighted a mild decline in industrial production and a flat performance in services output during the third quarter.

Survey indicators confirm a slowdown in economic activity, Karahan said, adding that retail sales and card spending data reinforce evidence of a cooling in consumer demand.

Labor market indicators point to easing tightness:

• The Composite Labor Market Conditions Index shows softening conditions.

• Labor supply and demand imbalances appear to be narrowing.

Karahan also said backward indexation in certain price categories pulls headline inflation lower, although the underlying downward trend remains intact.

“Tight Monetary Stance Will Strengthen Disinflation Through Demand, FX and Expectations Channels”

Karahan reiterated that monetary policy decisions will continue to align with the projected disinflation path.

“The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate and expectations channels,” he said.

He added that the Monetary Policy Committee will set the policy rate based on realized and expected inflation, as well as the underlying trend of price dynamics.

Further Tightening Not Ruled Out

Karahan stressed that all steps will be evaluated cautiously on a meeting-by-meeting basis, with particular attention to the inflation outlook.

“If there is a significant deviation from interim targets in inflation, the monetary policy stance will be tightened,” he said.

The governor underscored that anchoring expectations remains a key priority in sustaining disinflation.

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