2024 year-end inflation forecast announced

Central Bank of the Republic of Türkiye (TCMB) Governor Fatih Karahan has begun the presentation of the 2024 IV. Inflation Report. While the TCMB's 2024 inflation forecast stood at 38 percent, it was observed that the desired downward trend was not achieved in the September and October TÜİK CPI data. The TCMB was expected to revise its year-end inflation forecast upwards.

Highlights from Karahan's presentation are as follows:

 

"The disinflation process is continuing. Although the main trend of inflation is slower than our projections, it is improving.

 

Macroeconomic indicators are also progressing in line with the disinflation process.

 

We assess that domestic demand continues to slow down and has reached levels that support disinflation. The decline in the current account deficit continues.

 

We will maintain our tight stance in monetary policy in a way that ensures the continuation of disinflation.

 

The projection of a gradual recovery in global growth has been maintained. Global central banks are reducing monetary tightness by taking inflation trends into account.

 

The rebalancing process in demand continues. The demand composition in growth has shown a more balanced outlook.

 

Current data for the third quarter shows that the moderate trend in domestic demand continues. Supply indicators point to a slowdown in economic activity.

 

The output gap continued to decline in the third quarter. We assess that the decline in the output gap will continue in the last quarter of the year.

 

As a result of our tight monetary policy, the rebalancing in domestic demand will continue. We anticipate that the positive trend in the current account balance will continue.

 

INFLATION ASSESSMENTS

Improvement in inflation expectations is continuing gradually.

 

We see that the decline in the main trend of inflation continued in October.

 

Items with a strong tendency for backward-looking indexation are pushing services inflation upward. The return to school had an impact on services inflation.

 

Price increases in services other than rent are gradually losing strength.

 

Pricing behaviors of firms in the industrial sector are improving.

 

Core goods inflation continues to remain low.

 

With the weakening in demand conditions, the spread of price increases across the board is decreasing. Analyses indicate that as the output gap continues its downward trend, the spread of price increases may lose further strength in the coming period.

 

The impact of the tight monetary stance on expectations is being closely monitored.

 

INFLATION EXPECTATIONS

The impact of the tight monetary stance on expectations is being closely monitored. We are determined to ensure that expectations are formed in a way that contributes to the disinflation process with our tight monetary policy stance.

 

The tight monetary stance is supported by macroprudential steps.

 

The speed of improvement in inflation expectations is not as we desire.

 

“TIGHTNESS IN FINANCIAL CONDITIONS CONTINUES”

Excess liquidity is being sterilized through quantitative tightening. We are closely monitoring liquidity conditions.

 

We will continue to use our toolkit effectively. Tightness in financial conditions continues.

 

Our monetary policy stance and macroprudential framework will ensure that deposit interest rates remain at levels that support the transition to TL and savings.

 

Consumer loans are growing moderately. Growth in commercial loan increases continues below the limits.

 

We see that interest and confidence in TL assets are increasing. While the share of TL deposits is increasing, the share of KKM (FX-protected deposits) is declining.

 

Capital inflows have slowed down along with the decreasing risk appetite in global markets; capital inflows may show volatility depending on geopolitical developments in the coming period. Our tight monetary policy stance is positively reflected in reserves. The risk premium has maintained its moderate course."

 

Following Central Bank Governor Karahan’s presentation and his changing of inflation expectations in the medium-term projections, the session moved to the Q&A section with economists and journalists.

 

Stating in his answers to questions that they do not expect to make a significant revision to inflation for next year, Karahan said, “We were thinking of reaching the upper band of 42 percent in inflation at the end of the year; in the worst-case scenario, looking at the current situation, we will reach this in January 2025, but our target is the midpoint, and we assess that we will reach 38 in March 2025.”