Disinflation continues but risks alive, says Central Bank governor

ISTANBUL

Disinflation continues but risks are alive, Central Bank Governor Fatih Karahan said in a presentation on monetary policy and inflation outlook in Türkiye he made in Washington.

The underlying inflation indicators point to ongoing disinflation, he noted.

Goods inflation is low but will be affected by FX pass-through, while the decline in services inflation is becoming more evident, Karahan said.

Demand has exceeded expectations, driven by goods consumption, he added.

Türkiye's annual inflation rate slowed to 38.1 percent in March, marking its lowest level since December 2021.

Falling oil prices support disinflation, but the global economic outlook is uncertain, Karahan said in the presentation.

The FX pass-through is modest, reflecting improvement in pricing behavior, he noted.

The FX pass-through is expected to be around 35-40 percent, considerably lower than that during the summer of 2023, he detailed.

“Pass-through declined amid lower FX-protected deposit accounts [KKM] balances, improved inflation expectations and moderating demand,” Karahan said.

Proactive and market-friendly actions supported the tight monetary policy stance, he said, recalling that the bank raised its policy rate by 350 basis points to 46 percent at the Monetary Policy Committee Meeting in April.

Monetary policy transmission has improved considerably over the last year and active liquidity management has enhanced monetary transmission to market rates, the governor stressed.

Re-dollarization risks are contained by a decisive, tight policy stance, according to Karahan, who noted that compared to March 2024, retail FX demand is more limited. 

Between March 18 and April 15, the Turkish Lira outflows were mostly from money market funds, he said.