Tight monetary policy to anchor expectations: Central Bank Governor Karahan

ISTANBUL

Central Bank Governor Fatih Karahan pledged to maintain a tight monetary policy stance in order to permanently anchor expectations.

Speaking at a meeting in Istanbul on Jan. 27, Karahan said that both short-term indicators and the medium-term outlook confirm that disinflation is underway and will continue, while underscoring the central bank’s determination to sustain this approach until price stability is achieved.

In his presentation, Karahan highlighted a notable decline in inflation, pointing out that for the first time in 63 months, inflation has remained below 1 percent for two consecutive months.

He emphasized that since May 2024, inflation has shown a broad-based slowdown. While housing rents and education costs continue to push service inflation upward, he noted that reduced rigidity in services is expected to support disinflation by 2026.

Consumer and business inflation expectations have also begun to decline, according to the governor.

Karahan reiterated that the tight monetary policy stance will reinforce disinflation through demand, exchange rate and expectation channels. He further stated that the stance would be tightened if inflation deviates significantly from interim targets.

Turning to external trade, Karahan underlined that export performance is primarily shaped by external demand developments. He explained that a one percentage point increase in foreign demand growth leads to a 2.3 percent rise in exports, while a 1 percent depreciation in the real exchange rate results in a 0.2 percent increase.