The chief of Türkiye's central bank on Tuesday said the monetary authority is prepared to take action if adverse shifts in demand conditions hinder the disinflation process.
"If developments in demand conditions negatively affect the disinflation process, I want to emphasize that we will take the necessary measures," Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan said.
Karahan was speaking before the Parliamentary Planning and Budget Commission a day after official data showed Türkiye's annual inflation in April dropped to the lowest in more than three years.
Considering the uncertainties that Karhan says are higher compared to previous periods, the bank is "maintaining a cautious and tight monetary policy stance."
"Our tight monetary policy stance will continue until a permanent decline in inflation and price stability are achieved," he reiterated.
Annual inflation slowed to 37.9% last month, the lowest level since December 2021, the Turkish Statistical Institute (TurkStat) said on Monday.
Yet, monthly inflation climbed to 3%, partly due to a depreciation in the value of the Turkish lira following the arrest of Istanbul Mayor Ekrem Imamoğlu and uncertainty about U.S. tariffs.
Imamoğlu was jailed on corruption charges pending a trial. That sent the lira and Turkish assets sharply lower before authorities acted to stabilize the markets, which eventually led the central bank to reverse its easing cycle.
Although market volatility in mid-March caused some deterioration of inflation expectations, the government said the impact of the turmoil is temporary and limited and inflation will be in line with the central bank's target range.
The central bank's year-end inflation midpoint estimate currently stands at 24%, in a forecast range of 19% to 29%.
Karahan on Tuesday said cost-driven pressures on consumer prices were easing and that inflation expectations remain above their disinflation trajectory, necessitating a firm and determined monetary policy stance.
"To ensure the efficient functioning of financial markets, we will continue to proactively and decisively use all monetary policy tools within market rules," he noted.
As inflation eased, the CBRT began to gradually cut its benchmark interest rate in December and lowered it to 42.5% in early March. But it reversed the cycle last month with a surprise 350-basis-point rate hike to 46%, which boosted Turkish assets and signaled renewed commitment to tackling inflation.
If the recent decline in commodity prices, driven by concerns over global trade, proves to be permanent, it may partially offset the foreign exchange rate-induced upward pressures, said Karahan.
He also noted that there was an acceleration in capital outflows from Türkiye since the second half of March, following U.S. President Donald Trump's announcement of tariff hikes, which have prompted increased bets on a slowdown in the global economy.
"In the short term, foreign exchange rate developments and food prices continue to exert upward pressure on inflation," Karahan noted.
He also said the rate of conversion from maturing foreign exchange-protected deposit accounts to foreign currency remained at 13.8% over the last 12 months.
Among others, Karahan stressed the central bank would ensure that consumer loan growth remains on a moderate path.
