CBRT‘s Karahan Signals Caution as Disinflation Slows
Fatih Karahan, Governor of the central bank of the Republic of Turkey (CBRT), recently presented the “Monetary Policy and Inflation Outlook in Türkiye” in Istanbul, outlining a cautious approach to future policy decisions as disinflation progresses at a reduced pace.
Karahan affirmed that disinflation is ongoing, but acknowledged the slowdown, attributing it in part to temporary factors expected to diminish over time. He specifically cited adverse weather conditions as contributing to a recent increase in food prices, while noting strong seasonal effects in clothing inflation.Though, he also observed a continued slowdown in rental inflation. Basic inflation indicators, he stated, suggest a deceleration in the rate of inflation decline.
Despite an improvement in inflation expectations, Karahan cautioned that they remain elevated, though the divergence of opinion among survey participants has lessened. He also highlighted decreasing pessimism within the market, with companies demonstrating improved pricing behavior.
Economic activity indicators show a cooling trend. Industrial production experienced a slight decrease, while service production remained stable in the third quarter. Survey data corroborates this slowdown, reflected in retail sales and card expenditures, alongside a composite labor market conditions index indicating easing congestion in the labor market.
karahan explained that retrospective indexation is currently pulling down headline inflation, while the underlying downward trend remains intact. he also noted that market participants are responding symmetrically to both positive and negative inflation surprises.
He emphasized that general demand indicators point to ongoing rebalancing. The CBRT intends to maintain a tight monetary policy stance untill price stability is achieved, leveraging demand, exchange rate, and expectation channels to strengthen the disinflation process. The Monetary Policy Committee will set the policy rate at a level consistent with the projected disinflation path, considering both actual and expected inflation, as well as the overall inflation trend.
Looking ahead, Karahan stated that the size of future policy decisions will be evaluated carefully at each meeting, with a primary focus on the inflation outlook. He reiterated a commitment to action, stating, “In case there is a meaningful deviation in the inflation outlook from the intermediate targets, the monetary policy stance will be tightened.”
