Turkey cenbank lifts inflation forecast, pledges to keep it contained

Bank sees 38% annual inflation at year-end, up from 36%

Annual inflation to peak in May at 75-76%, chief says

Policy rate at 50% after aggressive tightening cycle

ANKARA, – Turkey’s central bank nudged up its year-end inflation forecast to 38% on Thursday and governor Fatih Karahan said it would “do whatever it takes” to avoid any lasting deterioration in inflation as it maintains a tight monetary policy stance.

Presenting a quarterly inflation report, Karahan said annual inflation – which climbed to 69.8% in April – will peak this month at 75-76% after which a disinflation trend will take hold alongside cooling domestic demand.

The central bank raised its mid-point consumer price inflation forecast for end-2024 to 38% from a previous 36%. Its forecast for end-2025 remains unchanged at 14%, while inflation is seen falling to 9% by the end of 2026.

Karahan said the central bank had raised its year-end forecast due to an unexpected additional 4 percentage-point rise in the first four months of the year.

The bank has aggressively raised rates by 4,150 basis points since last June but it kept the policy rate unchanged at 50% in April to allow its earlier monetary tightening, including a 500-point hike in March, to have an impact.

Karahan again pledged to tighten policy further if there is significant deterioration in inflation, which has soared for years, prompting a lingering cost-of-living crisis for Turks.

Analysts have said the bank has probably ended its nearly year-long tightening cycle, which marked a stark turnaround after years of unorthodox economic policy under President Tayyip Erdogan, who in the past urged low rates despite rising prices.

Reuters poll

published last week showed inflation falling to 43.5% by the end of 2024. Central Bank Deputy Governor Cevdet Akcay said at Thursday’s event that under the policy programme it was not possible for inflation to end the year above 42%.

Karahan, who took the bank’s reins in February, said leading indicators showed domestic demand was now following a more moderate trend than in the first quarter, and that the rate-hike cycle would cool demand more in the second half of the year.

At near 70%, annual inflation is the highest since late-2022.

The lira was mostly flat at 32.2325 to the dollar, near a record low, as the report was released.

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