Türkiye's disinflation process will get back on track after a delay of a few months, Treasury and Finance Minister Mehmet Şimşek said Friday.

Şimşek also pledged to meet budget targets even as the government waived income with steps to cushion the impact of rising crude oil prices.

Türkiye's disinflation has been tested by the energy prices that have been soaring due to the U.S.-Israel war on Iran, which effectively shut the key Strait of Hormuz to shipping.

In May, consumer prices in Türkiye increased 1.71% monthly and 32.61% annually, highlighting fallout from the conflict and focusing attention on the monetary policy outlook.

Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan on Friday said price stability remains the top priority and that the disinflation process will continue despite recent geopolitical tensions.

Both Şimşek and Karahan were speaking at the General Assembly of the Banks Association of Türkiye (TBB) in Istanbul.

Their remarks came a day after the central bank left its key interest rate at 37%, as ​expected, holding steady for a third consecutive meeting, as it monitors ‌the inflation impact of the Iran war.

Since the conflict started at the end of February, the CBRT has halted an easing cycle that began in late 2024 and taken other liquidity steps that pushed the ​overnight rate ​up to the ⁠40% limit.

Karahan said policy tools and strong reserves provide the means to sustain disinflation, and that a rebalancing in domestic demand is expected to continue supporting the process.

The governor said the central bank will continue to monitor all factors affecting the inflation outlook.

Progress despite shocks

Şimşek pledged continued fiscal policy support and structural reforms to bring inflation down to low single digits.

"Even if it is slightly delayed, we will achieve this; what matters is progress despite shocks," he said.

In its quarterly inflation report in May, the central bank ​raised its ⁠end-2026 interim inflation target to 24% from 16%, forecasting that the short-term inflationary effects of the Iran war would remain "pronounced."

It sees inflation falling to 15% in 2027 and to 9% by the end of 2028.

"Achieving price stability is of great importance because our ultimate goal is sustainable high growth," said Şimşek

'Manageable' current account gap

Şimşek forecasted a "manageable" current account deficit at 3% of gross domestic product (GDP) or lower by the end of the year.

Official data on Friday showed the 12-month rolling current account deficit in April dropped to $37 billion, or approximately 2.4% of GDP, compared to $39.7 billion in the previous month.

The balance posted a $5.7 billion gap in April, narrowing by about $2.8 billion compared to the same month of 2025, primarily due to a lower trade gap.

The shortfall in the first four months came in at almost $29.4 billion.

Şimşek said the government's budget deficit target will be reached despite the steps we took to limit the impacts of the war, including the sliding fuel pricing mechanism, which was introduced to limit the pass-through of crude oil prices to fuel pumps.

Reserves strong despite capital outflows

Karahan cited the latest policy measures, as he said loan growth is moving toward a more balanced path.

Strong reserves alongside policy tools act as buffers against geopolitical risks to disinflation, he noted.

Şimşek said reserves are at or near critical thresholds despite capital outflows, the impacts of the war and the drop in gold prices.

"We had reached a very good position in reserves before the war, but we experienced the negative impacts of the decline in gold prices," he noted.

"Nearly 40% of the change in reserves stems directly from the fluctuation in gold prices."

Şimşek said that although the world is seeing the largest supply shock in history due to the Iran war, domestic households had sold $1.8 billion in foreign currency since the start of the conflict.

"There was some demand for gold, but this foreign currency sale is significant. It demonstrates the household's confidence in the continuation of the financial program," he added.

Banks' return on equity below inflation

Also addressing the assembly, TBB Chair Alpaslan Çakar said banks' average return on equity stood at 26.8%, falling slightly below the inflation rate. He said the return on assets stood at 2.3%.

"Maintaining our return on equity at a minimum of the inflation rate is of critical importance for prudent risk management and for ensuring uninterrupted contributions to the financing of sustainable growth," Çakar noted.

Data last week showed Türkiye's banking sector's net profit rose 37.3% year-over-year to TL 363.3 billion (nearly $7.9 billion) in the first four months of the year.

The sector's total loan portfolio, its largest asset category, increased 10.6% from the end of 2025 to reach TL 25.6 trillion by the end of April.

Total assets rose 7.4% over the same period, climbing to TL 50.4 trillion. Bank deposits also expanded, rising 7.1% from year-end 2025 to TL 29.2 trillion as of April.

The sector's capital adequacy ratio stood at nearly 16.4% at the end of April, down 0.14 percentage points from the previous month and 3.32 percentage points lower than at the end of 2025.

Çakar still pointed out that the capital adequacy ratio remains well above the limits set by regulatory frameworks.