Central Bank keeps year-end inflation forecast stable
ANKARA
Türkiye’s Central Bank left its year-end inflation forecast for 2025 unchanged at 24 percent, Governor Fatih Karahan announced on Aug. 14.
Speaking at the Briefing on Inflation Report 2025-III in the Istanbul, Karahan said that the bank expects inflation to end 2025 in a range of 25 percent to 29 percent, with a 70 percent probability and to close 2026 in a range of 13 percent to 19 percent.
Türkiye’s annual inflation eased to 33.5 percent in July, the lowest level since November 2021, extending the downward trend from a peak of 75.5 percent in May 2024.
“Our tight monetary policy is gradually yielding results,” Karahan said on Aug. 14.
The bank “values the progress we have made in achieving price stability. To this end, we will continue to use all monetary policy tools decisively in the coming period,” he added.
Karahan said the bank foresees inflation stabilizing at 5 percent in the medium term.
"During the disinflation process, we will maintain our tight monetary policy stance to achieve our interim targets," he said.
The bank resumed interest rate cuts in July, reducing the policy rate by 300 basis points to 43 percent.
“Domestic demand has continued to slow down and demand-side disinflationary effects have increased,” Karahan said.
“The disinflation has continued uninterruptedly since June 2024. Underlying trend indicators suggest that disinflation is on track.”
The bank set the policy rate “to ensure the level of tightness required by the projected disinflation path,” Karahan added.
“In this process, we take into account inflation realizations, underlying inflation and inflation expectations. If we foresee a significant and persistent deterioration in inflation, we will effectively use all monetary policy tools at our disposal.”
Although there has been a modest improvement in growth expectations, Karahan added that forecasts “remain below the levels observed at the beginning of the year.”
Türkiye's economy expanded 2 percent during the first quarter of 2025 year-over-year, decelerating from the previous quarter's growth of 3 percent.
The governor also pointed out that Türkiye’s inflation path has been negatively influenced by persistent pressures in the services sector, particularly in categories such as rent, hotels, cafes and restaurants.
“Although inflation stood below market expectations in the last three months in a row, the inertia in the services sector remains above our projections, remaining as a risk factor to forecasts,” he said.
According to Karahan, preliminary data for July pointed to an improvement in the foreign trade balance, helping keep the current account deficit moderate.
“The current account deficit stood at around 1.3 percent of gross domestic product in the second quarter,” the governor said, adding that the ratio is expected to remain below long-term averages throughout 2025, although risks from energy prices and global trade policies persist.
