Sticky pricing, supply shocks kept inflation above target: Central Bank

ANKARA

Sticky pricing behavior, inflation expectations that remained only partly aligned with targets and temporary supply shocks kept 2025 inflation above the uncertainty band around its target, the Central Bank has stated in an open letter sent to Treasury and Finance Minister Mehmet Şimşek.

The letter also outlined the policies the bank said it had used and would continue to use to steer inflation back toward its target path.

The bank said the disinflation process that began in June 2024 continued through 2025, supported by tight monetary policy, tight financial conditions and more balanced demand. But it said supply-side developments, rigid pricing behavior and expectations that were not fully aligned with targets slowed the pace of disinflation.

Among the factors highlighted were drought and frost, which pushed up food prices, and energy price volatility linked to geopolitical developments. The bank also said price increases remained high in rent and education, where backward indexation is strong, while demand conditions remained at disinflationary levels throughout the year and the budget deficit-to-GDP ratio stood at 2.9 percent.

The bank said it followed a cautious, inflation-focused and meeting-by-meeting approach in 2025. It said it cut the policy rate by a total of 500 basis points in January and March to 42.5 percent, raised the overnight lending rate to 46 percent in mid-March to contain market risks, and then lifted the policy rate to 46 percent in April. It later left the rate unchanged in June, cut it by a total of 800 basis points over the rest of the year to 38 percent by December, and made a limited cut to 37 percent in January 2026.

The bank said it also maintained macroprudential measures to end FX-protected deposit accounts, known as KKM, and to increase the share of Turkish Lira deposits to strengthen monetary transmission.

The bank said it would tighten monetary policy if the inflation outlook shows a marked deterioration. It added that its short- and medium-term road map was set out in the “Inflation Report 2026-I,” published on Feb. 12, and in the accompanying “Monetary Policy for 2026” text.