Governor Fatih Karahan pledged on Wednesday that the Central Bank of the Republic of Türkiye (CBRT) would maintain a firm stance on monetary policy and deploy all available tools within market principles to ensure the effective functioning of financial markets.
“We will determine our steps with a proactive approach to limit the macroeconomic effects of volatility in the markets,” Karahan told the bank’s 93rd Ordinary General Assembly Meeting in Ankara.
Karahan said developments in domestic and international financial markets in March and April led to losses in financial assets. "To prevent these developments from disrupting the macroeconomic outlook, we have swiftly taken additional steps to support the monetary transmission mechanism," he noted.
Recent weeks have seen Türkiye’s central bank reverse its easing cycle amid volatility that sent Turkish lira and other assets sharply lower after last month’s arrest of Istanbul Mayor Ekrem Imamoğlu, who was jailed on corruption charges pending a trial. Assets recouped some losses after authorities acted to stabilize markets.
Globally, U.S. President Donald Trump's push to redesign world trade by imposing tariffs on all imports has sent shock waves through financial markets, wiping out trillions of dollars in stock market value, and has shaken investors' confidence in U.S. assets as a safe haven, including the dollar.
Domestic demand in Türkiye has lost momentum in the first quarter of this year, but data suggests it remains stronger than anticipated, according to Karahan.
“First-quarter indicators suggest that domestic demand is losing momentum but still exceeds expectations, reducing its disinflationary effect,” he said.
“We are closely monitoring demand indicators, and if developments in demand conditions negatively impact the disinflation process, we will take the necessary measures,” the governor stressed.
"We will maintain a tight monetary policy stance until a permanent decline in inflation and price stability are achieved," he reiterated.
Annual inflation 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.
The lira dropped as much as 12% in March to touch 42 against the U.S. dollar after Imamoğlu’s arrest. The currency later recovered most of those losses thanks to market-stabilizing steps by the central bank. It has since remained near 38, some 4.6% weaker than before the imprisonment.
The key policy interest rate will be determined "in a way that ensures the necessary tightness required by the projected disinflation process, taking into account inflation realizations, the main trend, and expectations," Karahan said.
Türkiye shifted to monetary tightening since mid-2023, which saw the central bank deliver aggressive rate hikes to curb inflation.
As inflation eased, the bank began its easing cycle in December and gradually cut its one-week repo rate to 42.5%. But it reversed it on April 17 with a surprise 350-basis-point rate hike to 46% that boosted Turkish assets and signaled renewed commitment to tackling inflation. The overnight lending rate rose to the new upper band of the rate corridor, around 49%, a day after the surprise policy tightening.
According to surveys, the bank is expected to restart its easing cycle by the end of the second quarter, with rate cuts likely to continue through at least the third quarter of 2026.
Treasury and Finance Minister Mehmet Şimşek said that although inflation expectations have deteriorated, the government does not expect permanent damage, adding that inflation is seen to remain within the central bank's target path.
The central bank's year-end inflation midpoint estimate currently stands at 24%, in a forecast range of 19% to 29%.
Karahan on Wednesday said the monetary policy stance would be tightened further if a significant and lasting deterioration in inflation is anticipated.
Karahan emphasized that price stability is a prerequisite for sustainable growth and societal prosperity, adding, "We will continue the disinflation process and work with determination and dedication to reduce inflation in line with the intermediate targets we have set."
