Central Bank sends tight monetary policy message

Fatih Karahan, governor of the Central Bank of Türkiye (CBRT), has stated that as a team they are closely monitoring monthly price developments.

Reiterating that the tight monetary policy stance will be maintained until a significant and durable decline in the underlying trend of monthly inflation is achieved and inflation expectations converge to the projected forecast range, Karahan also signaled further tightening.

"We expect that our firm monetary policy stance will reduce the underlying trend in monthly inflation and disinflation will be established in the second half of 2024 through the rebalancing of domestic demand, real appreciation of the Turkish Lira and improvement in inflation expectations," Karahan said in his speech at the general assembly of the bank.

Karahan explained that the underlying trend of monthly inflation in March was higher than forecast, despite the continued moderation.

"We are closely monitoring the effects of monetary tightening on credit and domestic demand," he said.

"Accordingly, I would like to emphasize that we kept the policy rate unchanged at our April meeting, taking into account the lagged effects of monetary tightening, while maintaining our cautious stance against upside risks to inflation."

Karahan said that they have observed the effects of the decisive steps taken in the framework of simplification in the form of increased functionality of the market mechanism and strengthening of the monetary transmission mechanism.

"In this process, the increase in the share of Turkish Lira deposits in the financial system and the decrease in the share of exchange rate-protected and FX-denominated deposits strengthen monetary transmission as well as financial stability," Karahan added.<...