Single-digit inflation remains our target: Karahan

ISTANBUL

Central Bank Governor Fatih Karahan reiterated on Nov. 26 that the bank's ultimate goal is to bring inflation down to single digits, describing the fight against high prices as a long but necessary battle.

In a live interview with NTV, Karahan outlined the bank's three main priorities since taking office: Reducing foreign-exchange-protected deposits (KKMs), rebuilding reserves and establishing disinflation before achieving single-digit inflation.

"We have made substantial progress on all three," he said.

Gross reserves rose by more than $80 billion, while net reserves showed an even stronger improvement. Most of the increase came from citizens converting foreign currency to Turkish Liras, according to Karahan.

The KKM balance, which once exceeded $140 billion, has now fallen below $1 billion, he said.

"The most important goal is price stability," Karahan stressed, noting that high inflation erodes welfare and lies at the root of the other two issues.

He said the bank had capped inflation at 75 percent last year when triple-digit figures seemed possible and has since brought it below 33 percent.

Demand conditions are now consistent with disinflation, he added, and the bank will continue calibrating policy tightness to support further declines.

"Inflation is like a virus," Karahan said.

"When it stays in the system too long, removing it becomes harder. But we are applying the right prescription."

He pointed to falling rent increases — now below 4 percent — and rising housing supply as supportive factors.

Services’ inflation has also dropped from the 70s to 44 percent.

On market rates, Karahan warned that long-term interest rates are driven more by inflation expectations than the policy rate.

"If expectations deteriorate, market rates can rise even if we cut the policy rate," he said.

The next inflation reading will be released next week.