The Central Bank of the Republic of Türkiye (CBRT) on Tuesday said data suggest the disinflation process that has been ongoing for more than a year has slowed, but stressed it remains committed to ensuring inflation stays in line with its interim targets.
In a presentation to Parliament's Planning and Budget Commission, CBRT Governor Fatih Karahan said the bank’s tight policy stance will ensure the continuation of disinflation and they would continue to “decisively” use all policy tools.
Karahan’s remarks came after last week’s data showed Türkiye’s annual inflation climbed in September for the first time in more than a year, raising fresh questions over the pace of interest rate cuts by the bank.
The annual inflation jumped to 33.29%, from 32.95% in August. On a monthly basis, it jumped 3.23%, compared to 2.04% in the previous month.
“Although the disinflation process has slowed, we will ensure that inflation aligns with our interim targets through the steps we will take,” Karahan said.
“We value the progress we have made toward achieving price stability. In the upcoming period, we will continue to decisively use all monetary policy tools.”
The central bank estimates inflation will drop to about 24% by the end of the year, with a forecast range of 25%-29%. The government's newly updated medium-term program expects it to slow to 28.5% this year.
"Median inflation, which has relatively better forecasting performance, suggests that the underlying trend is around 26%,” said Karahan.
“Although this level is below the current consumer inflation rate of 33.3%, it indicates that the disinflation process has slowed."
The CBRT lowered its benchmark policy rate by 250 basis points to 40.5% in September for the second consecutive month, and has signaled it may slow the pace depending on inflation dynamics.
That rate cut, and its 300-point reduction in July, were a bit more aggressive than analysts had expected.
Analysts expect the bank to continue rate cuts this month, but at a lower pace.
The bank stands ready to tighten its stance if the inflation outlook diverges significantly from the interim targets, Karahan said.
The governor said inflation expectations have improved, but they still remain above forecasts and continue to pose a risk.
Karahan still said the tight stance continues to yield results gradually, with domestic demand showing clear signs of cooling.
On September’s stronger-than-expected rise in inflation, he pointed to food and services prices.
“Monthly service inflation rose due to the back-to-school effect, while supply-side factors influenced food prices,” he said.
Services inflation remains sticky, mainly due to backward indexation and time-based pricing behavior in certain items such as rents and education, the governor noted.
In service subcategories that are highly sensitive to demand conditions, such as restaurants and hotels, price increases have been relatively moderate, he added.
“We must note that rent inflation has been higher than anticipated, influenced by supply-side factors specific to the housing sector, such as earthquakes and urban transformation,” Karahan explained.
