TCMB Strategy: Governor Karahan Signals Tightening
fatih karahan
During the 94th Ordinary General Assembly Meeting of the Central Bank of the Republic of Türkiye (TCMB), Governor Fatih Karahan delivered a comprehensive assessment of the 2025 economic landscape and the first quarter of 2026. Highlighting the ongoing disinflation process, Karahan revealed that 2025 ended with an inflation rate of 30.9% and a growth rate of 3.6%.
However, his primary message was a stern warning to markets: the bank is prepared to tighten monetary policy further if regional conflicts in the Middle East cause a permanent deterioration in the inflation outlook.
The 2025 Economic Balance Sheet
Governor Karahan noted that 2025 was a year of “resilient growth” despite global uncertainties. While investment and trade faced pressure worldwide, Türkiye managed moderate growth driven primarily by the services sector.
Key 2025 Macro Indicators:
-
Economic Growth: Realized at 3.6%, supported by services, industry, and construction, though hindered by agricultural losses due to drought.
-
Inflation: Dropped 13.5 points from the previous year to close at 30.9%.
-
Current Account Deficit: Totaled $30.2 billion, as improvements in energy balances were offset by gold and core trade imbalances.
-
Policy Interest Rate: Following a volatile year of adjustments, the policy rate was lowered to 38% by the end of 2025.
2026 Outlook: Energy Shocks and Policy Response
The start of 2026 has been marked by renewed geopolitical tensions in the Middle East, leading to high volatility in energy prices. Karahan explained that while the policy rate was initially lowered to 37% in January, the bank has since pivoted to a more cautious stance.
Strategic Measures Taken in Early 2026:
-
Liquidity Management: In March, the bank suspended one-week repo auctions, pushing the weighted average funding cost to 40%.
-
Currency Stability: TL-settled forward foreign exchange sales were introduced to curb volatility in the FX markets.
-
Inflation Anchoring: Despite cost pressures from rising commodity prices, the Eşel Mobil (sliding-scale) system and a stable Lira have limited the pass-through to consumers.
Future Commitments: “The Tightening Trigger”
Governor Karahan emphasized that the TCMB’s primary mission remains sustainable price stability. He outlined that the bank is moving away from broad-based rate cuts toward a “data-dependent, meeting-by-meeting” approach.
“In the event of a significant and permanent deterioration in the inflation outlook, we will tighten our monetary policy stance.” — Governor Fatih Karahan
This commitment is backed by the final termination of Currency Protected Deposits (KKM) and new AI-driven models to track market expectations more accurately. The bank is also expanding the FAST payment system and its network of banknote depots to ensure financial infrastructure remains robust during regional crises.
Source: karar
