Turkish Central Bank Governor Fatih Karahan has said inflation expectations and the slowdown in domestic demand will shape the inflation outlook in the coming period.
“The deterioration in inflation expectations remained limited despite the geopolitical backdrop,” Karahan said during a presentation titled “Inflation and Macroeconomic Outlook” in London on June 24.
Karahan said food and energy inflation, which rose due to supply shocks, could ease as geopolitical tensions subside.
He added that slowing demand and declining inertia in services would support disinflation in durable goods and services.
The weakening in demand is expected to improve pricing behavior, Karahan said, noting that higher energy prices had increased Türkiye’s import bill.
However, slower domestic demand has limited pressure on the current account balance, while exports have remained resilient, partly due to demand being redirected, he said.
On the risk of renewed dollarization, Karahan said demand for Turkish lira assets remained strong, supported by tight monetary policy, macroprudential tools and strong foreign exchange reserves.
“Residents’ demand for Turkish lira remains robust and foreign exchange reserves are strong,” he said.
Karahan said short-term inflation dynamics were being shaped by food and energy supply developments, easing inertia in services and the slowdown in demand.
Food inflation remains volatile and has recently followed an elevated course, he said, while declining inertia in rent and education has supported disinflation.
He added that the decline in household inflation expectations had become more widespread.
Karahan said retail sales volume, total card spending and loan growth pointed to a slowdown in economic activity, while the capacity utilization rate remained weak.
The foreign trade deficit narrowed in the second quarter, while the impact of geopolitical developments on tourism remained limited, he said.
Karahan added that the current account deficit remained moderate compared with its historical average, and household demand for foreign currency stayed limited.
