Inflation over the next two months might be "noisy," Turkish central bank governor said, according to a presentation released on Thursday, but also indicated that lower inertia in services will "support disinflation in 2026."
The text of a presentation released by the Central Bank of the Republic of Türkiye (CBRT), titled "Monetary Policy and Inflation Outlook in Türkiye," covered remarks made in London and New York on Jan. 13-14.
CBRT Governor Fatih Karahan delivered presentations on the Turkish economy to investors at meetings held with international investment banks and financial institutions, a report by Anadolu Agency (AA) said on Thursday.
Treasury and Finance Minister Mehmet Şimşek also traveled first to London and then to New York and was set to attend the "Türkiye Investment Conference," and also to hold one-on-one meetings with senior executives, chief economists and analysts of global investment firms, according to ministry sources earlier this week.
According to the presentation, Karahan reiterated that "a tight monetary policy stance will be maintained until price stability is achieved," and it will strengthen the disinflation process through demand, exchange rate and expectation channels.
The central bank will determine the policy rate by taking into account realized and expected inflation, he also said.
"The committee will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets," the conclusions of the presentation said.
"The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook," he added.
Among others, he also mentioned that inflation expectations "have improved especially for households and businesses."
Annual inflation in Türkiye dropped below 31% in December, marking the lowest since late 2021.
At its last Monetary Policy Committee (MPC) meeting, the central bank cut interest rates by 150 basis points, lowering the policy rate to 38%, citing softer inflation. It also noted that inflation expectations and pricing behavior are "showing signs of improvement" even as they continue to pose risks to the disinflation process.
Service inflation, led by rents and education, has been seen in the past as an area with the largest inertia, which, according to officials, has been holding up broader improvement in headline inflation.
However, Karahan in the new presentation pointed out that the "lower inertia in services will support disinflation in 2026."
"Many underlying inflation indicators (are) at (their) lowest levels since September 2021," he also said.
The central bank has set its interim inflation target at 16% for the end of 2026. The bank projects 2026 inflation to be between 13% and 19%.
Meanwhile, the CBRT is set to convene for its first MPC meeting of the year next week, and most analysts expect it to continue the easing cycle.
According to the median forecast of the institutions participating in the interest rate survey made by finance-focused Bloomberg HT broadcaster on Wednesday, the market expects the CBRT to cut interest rates by 150 basis points from 38% to 36.5% at its meeting on Jan. 22.
The lowest policy rate forecast for January was 36%, while the highest forecast was 38%. Only two of the 20 institutions participating in the survey expect the central bank to skip a rate cut in January, the publication said.
