Demand-driven price pressures easing, says Central Bank chief
ISTANBUL
The breakdown of August’s inflation numbers and second-quarter growth showed that demand-driven price pressures are easing, Central Bank Governor Fatih Karahan said.
Though headline GDP growth was higher than forecasts, the components of the GDP data showed that demand conditions continue to support disinflation,” he told Bloomberg in an interview.
Karahan highlighted that private consumption has been negative for two consecutive quarters.
The Turkish GDP growth accelerated from 2.3 percent in the first quarter to 4.8 percent in the second quarter. Annual inflation eased to 32.95 percent last month despite a sharper-than-expected monthly rise of 2.04 percent.
Karahan emphasized the main indicators of the underlying inflation trend offered “a healthier assessment.”
Those show that price rises are continuing to ease, he said, while adding that the central bank is keeping a close eye on the impact of increases in rent and education on inflation expectations.
Asked whether the central bank’s views on inflation are influenced by the overall uncertainty, Karahan said: “We haven’t allowed for the deterioration of inflation expectations nor for demand to disrupt disinflation and we won’t allow it.”
The official targets will be used to “determine the tightness of monetary policy in the current and near-term period,” Karahan also said.
“Because monetary mechanism takes some time, in the short run, estimates could diverge from the interim targets,” he added.
The bank estimates that inflation will be between 25 percent and 29 percent by the end of 2025.
it expects annual inflation to decline to 24 percent at the end of this year and 16 percent by the end of 2026.
Karahan also suggested investors may have been too hasty in reducing their forecasts for interest-rate cuts.
After August inflation came in above forecasts, analysts are revising down their expectations for the size of the Central Bank’s rate cut at next week’s policy meeting.
For instance, JPMorgan said on Sept. 3 that it now expects the Central Bank to lower its benchmark one-week repo rate by 200 basis points next week — down from its earlier forecast of 300 basis points.
