Critical 'interest rate' statement from Central Bank Governor: 'There is still some distance to go'

Evaluating the global economy, Karahan stated that while a limited recovery trend continues in global growth, the positive divergence in the services sector persists.

Expressing that a more pronounced recovery is expected in Türkiye's external demand outlook in 2025, Karahan said that the decline in global headline and core inflation continues.

Karahan continued his presentation as follows:

The disinflation process has begun as we anticipated. Macroeconomic indicators are progressing in line with this process.

Domestic demand has been decreasing since the second quarter. We anticipate that the rebalancing in demand will continue to strengthen. With the effect of this rebalancing, the decline in the current account deficit continues.

When we look at supply conditions, industrial production increased on a monthly basis in July, while it recorded a limited decrease on a quarterly basis.

We assess that the main trend of industrial production is relatively weak when excluding the mechanical effect caused by bridge days and sectors exhibiting high volatility.

The moderate loss of momentum in production indicators in the third quarter is consistent with the outlook I summarized regarding demand.

"A CORRECTION IS TAKING PLACE"

As a result of our tight monetary policy, the rebalancing in domestic demand will continue. The output gap, which will fall to negative levels for the remainder of the year, will be an important component of the disinflation process.

During periods of monetary tightening, a correction occurs in the current account balance. We anticipate that the positive trend in the current account balance will continue in the coming period, in line with our tight monetary stance.

The decline in annual inflation stems not only from the base effect but also from the fact that monthly price increases are trending lower. When we look at the recent course of various indicators, we see that the moderate trend in the main inflation trend continues, despite the increases in administered and guided price adjustments that occurred in the third quarter of the year and their indirect effects.

Leading indicators point to a decline in rent inflation in the coming months. With the continued decline in headline inflation, we anticipate that the expectations of all sectors will decline. Indeed, September data indicate that the inflation expectations of all units have been updated downwards.

The convergence of inflation expectations to the forecast range is of critical importance for disinflation.

"TIGHTNESS WILL CONTINUE"

With our tight monetary policy stance, we are determined to ensure that expectations are formed in a way that contributes to the disinflation process.

We will resolutely maintain our tight stance in monetary policy until price stability is achieved. As we have emphasized before, we are observing two main conditions in this process. The first is that the main trend of monthly inflation shows a significant and permanent decline. The second is that inflation expectations converge to the projected forecast range. We assess that there is still some distance to go in both criteria. For this reason, we will continue to maintain tightness in monetary policy.

In the event that a significant and permanent deterioration in inflation is foreseen, we will use our monetary policy tools effectively.

I would like to underline once again that; price stability is a prerequisite for sustainable growth and an increase in social welfare.

In the disinflation process that began in June, we will continue to do whatever is necessary to reduce inflation in a way that is consistent with our determined intermediate targets.

News Source: 12punto