Türkiye's central bank chief said Tuesday that global trade and economic policy uncertainties have recently grown, highlighting that U.S. tariff hikes are leading to lowered growth projections and fueling concerns about both recession and inflation.
In Türkiye, the slowdown in price growth continues, with a decline in services inflation becoming evident after a similar trend in goods inflation, Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan told an event in Istanbul.
U.S. President Donald Trump’s unveiling of a 10% baseline tariff on all imports to the U.S. along with higher duties on dozens of other countries sent world markets into a tailspin.
The baseline tax took effect on Saturday. The higher rates are due to take effect on Wednesday. European Union imports will face a 20% tariff, while Chinese goods will be hit with a 34% tariff, bringing Trump's total new levies on China to 54%.
On Monday, Trump vowed additional 50% levies if Beijing does not withdraw retaliatory tariffs on the U.S. Beijing said on Tuesday it would never accept the "blackmail nature" of U.S. threats.
Türkiye is subject to a 10% U.S. tariff, lower than many other countries, prompting government officials to point out the potential benefits of being a relatively cheaper source of goods.
“Uncertainties regarding global trade and economic policies have risen recently. The comprehensive tax package in the U.S. has impacted growth and inflation expectations,” Karahan said.
He said volatility in global financial markets has increased and recession expectations have pushed long-term global bond yields downward.
On the other hand, commodity prices have been seeing a considerable decline, which Turkish officials say will benefit Türkiye and could help narrow the country’s current account deficit.
"The current account deficit is at historically low levels," said Karahan, adding that despite weak external demand, Türkiye has managed to expand its market share in exports.
"The foreign trade balance, excluding gold and energy, remains stable," he said.
Karahan said production indicators are signaling a recovery in Türkiye's economic activity and that domestic demand remains moderate but somewhat resilient.
The disinflation process is ongoing, according to Karahan, though the core trend of inflation saw a first-quarter-specific uptick.
Annual consumer price sustained its downward trend and slowed to 38.1% in March. It marked the lowest since December 2022 and extended the fall from a peak of around 75% last May.
“Following goods inflation, we are now seeing a clearer decline in services inflation as well,” said Karahan.
However, he cautioned that strong backward indexation in certain components continues to exert upward pressure on services inflation.
Karahan also remarked that cost increases are decelerating, and inflation expectations are trending downward.
The governor went on to recall the actions the central bank took after major volatility in Turkish markets following last month's detention of Istanbul Mayor Ekrem Imamoğlu.
Imamoğlu was arrested on March 23, pending trial on graft charges.
His detention sent the Turkish lira, stocks and bonds sharply lower before authorities acted to help assets recoup some of the losses.
The lira remained relatively stable over the recent days and traded at around 38.0110 against the U.S. dollar on Tuesday. It had touched a record 42 to the dollar after Imamoğlu's detention before authorities stabilized it.
On Monday, Treasury and Finance Minister Mehmet Şimşek said the recent lira weakening could cause a rise in April inflation, but he added that disinflation will continue as most of the impact of volatility will be temporary and limited.
Karahan referred to a CBRT's unscheduled meeting on March 20, during which the bank hiked its overnight lending rate by two percentage points to 46%. It kept its benchmark one-week report rate steady at 42.5%.
As part of liquidity management, he said the bank had temporarily suspended one-week repo auctions and decided to begin issuing liquidity bills with maturities of up to 91 days to strengthen the monetary transmission mechanism and support the tight monetary stance.
It also launched lira-settled forward foreign exchange sales operations "to ensure the sound functioning of the foreign exchange market, to prevent possible volatilities in exchange rates and to stabilize foreign exchange liquidity."
