Turkish Central Bank keeps Inflation Forecast for 2025 at 24 Percent

“We target inflation to decrease to 8 percent in 2027 and stabilize at 5 percent in the medium term,” Central Bank Governor Fatih Karahan said on May 22, presenting the bank’s second inflation report of 2025.

“Our medium-term forecasts are based on an outlook in which the tight monetary policy stance will be maintained until a significant and sustainable decline in inflation is achieved,” he said.

Considering the high level of uncertainties compared to the previous period, the bank will decisively adhere to its prudent and tight monetary policy stance, Karahan said, stressing that going forward, they will maintain the decisive monetary policy stance and act to ensure the continuation of the disinflation process.

The annual inflation rate in Turkey was 37.86 percent in April, down from 38.1 percent in March. The April rate was the lowest since December 2021, when it was 36.08 percent.

The disinflation process that started in June 2024 continues uninterruptedly, Karahan said, adding: “We continue to gradually reap the outcomes of our tight monetary policy. Underlying inflation indicators signal the continuation of the disinflation process.”

The fall in commodity prices is also expected to support disinflation, according to the bank governor.

Inflation expectations continue to hover above our disinflation path, and this requires the bank to maintain its tight and decisive monetary policy stance, he noted, saying that domestic demand lost momentum but stayed above projections.

Karahan said that demand composition has become more balanced amid tight monetary policy and that current data imply that the exchange rate effect is more subdued than in the past.

In response to the financial market developments in March and April, the Central Bank proactively took the necessary measures, he also noted.

“Our proactive steps as per the market functioning supported the tight monetary policy stance. Measures taken reduced the volatility in financial markets and financial conditions remain tight,” he said, adding that the bank’s tight monetary policy stance is supporting the reserves.

Gross reserves, which were $124 billion in March last year, reached $171 billion in mid-March this year, Meanwhile, net reserves excluding swaps rose from minus $65 billion to $66 billion, according to Karahan.

“Having declined to $139 billion on May 2, gross reserves picked up again, reaching $146 billion on May 16. In this period, net reserves excluding swaps first fell to $14 billion, then rose to $21 billion,” he said.

Source: HDN