Central Bank announces year-end inflation forecast

Central Bank Governor Fatih Karahan presented the first report of the year.

Highlights from Karahan's statements:

Our disinflation process is continuing. Macroeconomic indicators are also progressing in line with this process. Recently, we have seen that uncertainty regarding global trade policies has increased significantly. Market pricing indicates that interest rates will be cut more slowly in 2025 in both developed and developing countries. Current production indicators for the fourth quarter point to a moderate recovery in economic activity.

Data on the demand for goods and services as a whole indicate that demand conditions are at levels that support the decline in inflation. I would like to underline that the balanced course in domestic demand will continue as a result of our tight monetary policy. The output gap will continue to remain in negative territory in the coming period, continuing to be an important component of the disinflation process.

"WE EXPECT AN INCREASE IN THE CURRENT ACCOUNT DEFICIT"

In the coming period, we expect an increase in the current account deficit. However, this increase will be limited due to the effect of our tight monetary stance. We project that the current account deficit as a ratio to national income will continue to remain below its historical average in 2025.

The decline in the underlying trend of inflation continued in the last quarter. The underlying trend rose in January, in line with our projections.

In January, a higher price increase occurred in the group that performs time-dependent pricing. In items that determine prices based on the situation, the rate of price increase is lower compared to the previous year. There is a real decline in card expenditures.

EFFECT OF HEALTHCARE COPAYMENTS ON INFLATION

Official healthcare examination copayments were increased for the first time since 2017. The impact of this high-rate increase on January consumer inflation was 0.6 points. Furthermore, the regulation will also have spillover effects on February inflation.

RENT INFLATION SHOWS SIGNS OF SLOWING

We see that rent inflation, while high, is showing signs of slowing. The periodic increase in monthly rent inflation in January stems from the rise in the rate of rent contract renewals.

We can say that the pressure coming from producer prices on consumer inflation, particularly in core goods, is moderate.

Recently, we have observed that the decline in inflation expectations of consumers and firms has become more pronounced. With our determined stance on monetary policy, the improvement in expectations will continue.

"DEPOSIT INTEREST RATES SUPPORT THE SHIFT TO TL"

We support the effectiveness of monetary transmission with macroprudential measures and liquidity management. We are sterilizing the excess liquidity in the market by using reserve requirements and our other existing tools. Thanks to our monetary policy stance and macroprudential framework, the level of deposit interest rates continues to support the shift to the Turkish lira and savings.

COMING TO AN END IN KKM

Considering the current level of KKM (FX-protected deposit accounts), we plan to terminate this practice within the year, prioritizing legal entities. The increasing confidence of domestic and foreign residents in the Turkish lira continues to be reflected positively in our reserves.

INFLATION FORECAST RAISED

Inflation is projected to be 24 percent for 2025, 12 percent for 2026, and 8 percent for 2027. We aim for inflation to stabilize at the 5 percent level in the medium term after falling to 8 percent in 2027. In the forecast update for 2025, factors outside the relative sphere of influence of monetary policy were decisive.