Turkey’s Central Bank Policy Statements

By Ezgi Erkoyun and Jonathan Spicer
ISTANBUL (Reuters) – Turkey’s central bank governor, Fatih Karahan, stated that the bank is “not on autopilot” following two consecutive interest rate cuts. The bank raised its year-end inflation forecast from 21% to 24%.

“We can pause or change the size of policy rate moves,” Karahan said at a news conference after presenting the quarterly inflation report in Istanbul. He affirmed that rate cuts align with data-driven decisions.

As inflation and interest rates decline, authorities anticipate an end to years of price and currency instability. “We make our policy decisions prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” he noted.

On Friday, the lira weakened to 35.9850 against the dollar, down from 35.8660.

Economists expect the Turkish central bank (TCMB) to reduce its benchmark rate from the current 45%. Yatirim Finansman’s chief economist, Erol Gurcan, predicts a 250 basis point cut in March unless February’s inflation exceeds expectations. January’s monthly inflation rose to 5.03% due to a minimum wage hike and price adjustments, while annual inflation dropped from above 75% last May to 42.12% in January.

Factors Behind Revision

Karahan stated the bank’s 2026 inflation forecast remains at 12% and predicts an 8% rate by 2027. The 2025 revision reflects factors largely outside monetary policy’s control. Key contributors include increased service weight in the CPI basket, rising food prices, and state-administered price hikes.

The bank’s inflation control efforts began in June 2023 with aggressive interest rate hikes totaling 4,150 basis points, raising the key rate to 50% last March—a stark pivot from years of low rates supporting growth.

After cutting rates by 250 basis points in December and January, the current policy rate stands at 45%, with expectations of lowering it to 30% by year-end.

President Tayyip Erdogan, previously seen as influencing monetary policy, has shifted to support current measures after years of previous policies led to currency crashes and soaring inflation.