Karahan affirms tight policy amid Turkey's disinflation progress
Central Bank of the Republic of Türkiye Governor Fatih Karahan presented the first Inflation Report of 2026, affirming a tight monetary policy stance. He noted progress in disinflation and recent rate cuts, while highlighting global and domestic risks to the inflation outlook.
Tight policy commitment yields disinflation gains
Governor Karahan highlighted the success of the Central Bank of the Republic of Türkiye's (CBRT) tight monetary policy in 2025, which gradually yielded results in improving inflation expectations and pricing behavior.
He noted a meaningful easing of long-persisting inertia in certain services, such as rent, which is a key factor for future disinflation.
The CBRT reduced the policy rate from 39.5 percent to 38 percent in December.
In January, after assessing underlying inflation and temporary factors, the Monetary Policy Committee delivered a limited 100 basis point cut, bringing the policy rate to 37 percent.
Karahan emphasized the readiness to decisively use all monetary policy tools to ensure the continuation of the disinflation process in line with targets, underscoring a data-driven and prudent policy stance.
Global headwinds and domestic rebalancing
The global economy faces fluctuating uncertainties stemming from protectionism in foreign trade and heightened geopolitical risks, which tilt the global growth outlook to the downside despite a recent rebound in forecasts.
Developed countries' monetary policies are diverging, with the Federal Reserve expected to continue rate cuts in 2026, while markets price a tighter stance from the Bank of Japan.
Domestically, the CBRT's tight monetary policy has led to a rebalancing in demand composition, with consumption's contribution to growth receding and investment increasing in 2025. Indicators like industrial and service production remained flat in the last quarter, while retail sales and card spending showed a moderate recovery, suggesting demand conditions continue to support disinflation, albeit to a lesser extent.
Cautious optimism, persistent challenges
Governor Karahan's speech balances disinflation progress with persistent risks, underscoring the need for continued tight policy.
The limited rate cuts signal a cautious approach, prioritizing price stability over growth, which is crucial given volatile food prices and services inflation.
Global uncertainties and moderate domestic demand recovery suggest the path to the target remains challenging, demanding unwavering commitment.