Central Bank Governor Fatih Karahan has said household demand for the Turkish Lira remains strong, while easing rigidity in rents and education is supporting disinflation in services.
Karahan made the remarks during a presentation titled “Inflation and the Macroeconomic Outlook” at the J.P. Morgan Türkiye Economic Forum in Istanbul.
He said annual inflation fell to 32.1 percent in June, while supply shocks continued to push headline inflation upward.
“The decline in rigidity in rents and education supports disinflation in the services sector,” Karahan said.
He said core goods inflation had remained strong recently but added that price pressures were expected to ease.
Karahan noted that the recent acceleration in inflation created upside risks for the short-term inflation outlook.
However, he said the deterioration in inflation expectations had remained limited and that the distribution of household and real sector inflation expectations had improved.
Karahan said capacity utilization remained below historical averages and that demand indicators pointed to a slowdown in economic activity.
Credit growth has slowed, while the trade deficit narrowed in the second quarter of the year, he said.
He also said the impact on tourism had remained limited.
Karahan said the current account balance was moderate compared with historical averages.
“Household foreign exchange demand remained limited. Household demand for the Turkish Lira continues to remain strong,” he said.
He added that reserves were at a strong level.
Karahan said conflicts in the Middle East had delayed the disinflation process, while the slowdown in economic activity continued under tight financial conditions.
“The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate and expectations channels,” Karahan said.
He said the Monetary Policy Committee would determine policy rate steps in line with inflation realizations, the underlying trend and expectations, ensuring the degree of tightness required by disinflation.
Karahan also said monetary policy decisions were being taken with an inflation-focused, meeting-by-meeting and cautious approach.
He added that the monetary policy stance would be tightened if the inflation outlook diverges significantly from interim targets.
