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ANALYSIS | Akbank Chief Economist Çağrı Sarıkaya: “Monetary Stance Tightest in Over Two Decades”

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Akbank Chief Economist Çağrı Sarıkaya offered key insights into Turkey’s current monetary policy outlook and its possible consequences, in a LinkedIn post that quickly gained traction among market watchers.

Pre-shock Landscape: Growth Before Landing

Before recent domestic and global shocks, economic data pointed toward a resilient growth outlook, defying market forecasts. With partial recovery in external demand, strong credit growth, and a supportive fiscal stance, Turkey’s economy appeared to be steering toward 5% growth in 2025.

Indicators for Q4 2024 and Q1 2025 showed a clear rebound following mild contractions in Q2 and Q3 2024 — a scenario Sarıkaya likens to a “take-off before landing.”

Akbank Chief Economist Cagri Sarikaya

Interest Rate Cuts Came Too Soon?

From the inflation-targeting perspective, Sarıkaya argues that the Central Bank (CBRT) was a bit too eager with early rate cuts. Had the policy rate been held steady through the end of Q1 2025, the ongoing disinflationary trend could have led to an even tighter monetary stance — with a higher probability of staying within the inflation forecast band.

Post-Shock Reality: CBRT Back in Control

Recent political and economic shocks have dictated the level of monetary tightness that, ideally, CBRT should have already implemented preemptively. However, it now appears the Central Bank has regained the reins, similar to the shift seen after March 2024. The current stance reflects a central authority that’s once again in command of policy.

Disinflation Ahead – But at a High Cost

 

Sarıkaya highlights that Turkey is now heading into a phase of costly disinflation. The current monetary stance is the tightest Turkey has seen in over 20 years, a claim supported by historical data on contraction periods (see chart reference in original post). Compared to Q2 and Q3 of 2024, a sharper slowdown now appears inevitable.

Total demand conditions, which remained relatively stable in the past two quarters, are expected to align more closely with CBRT’s output gap projections in the near term.

Markets Adjust Inflation Expectations

In March and April, market participants revised their year-end inflation forecasts upward by 2.5 to 3 percentage points, pushing expectations above 31%. These upward revisions — reflecting what Sarıkaya describes as a “passive monetary policy assumption” — may reverse if CBRT sustains its recent strong policy stance.

Akbank Economic Research, in contrast, made only a modest upward revision to its inflation forecast: from 29.2% to 30.0%, arguing that tighter financial conditions would dampen FX-driven inflation pressures. Early signals from May inflation data support this view, increasing the likelihood that inflation will stay within the official forecast band.

Will May Inflation Drop?

Akbank’s “nowcast” models, designed to monitor intra-month inflation trends, suggest a decline in inflation:

  • Most models project lower-than-average outcomes (median < mean). The interquartile range (IQR) is 1.65–2.26; median is 1.80; mean is 1.96.

  • Based on these estimates, annual inflation could fall from 37.9% to around 35.8%–36.0%.

  • The seasonally adjusted monthly increase in consumer prices (CPI) is around 1.9%, consistent with the ongoing moderation in underlying inflation trends.

Contributing factors include delayed adjustments in administered prices, falling fuel costs due to global oil trends, and weakening domestic demand — all of which support a more favorable short-term inflation outlook.

Global Tailwinds Could Help

A new 90-day US-China trade agreement, which reduces mutual tariff rates (China from 125% to 10%, US from 145% to 30%), is reshaping expectations around global growth and commodity prices. Sarıkaya notes that the impact on fuel prices is worth monitoring closely.

Despite the uncertainties and room for forecast errors, Sarıkaya believes that the recent mild recovery in reserves, combined with such an inflation trajectory, could pave the way for a loosening of monetary policy — possibly even a rate cut in June.

IMPORTANT DISCLOSURE: PA Turkey intends to inform Turkey watchers with diverse views and opinions. Articles in our website may not necessarily represent the view of our editorial board or count as endorsement.


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