Central Bank writes open letter to the government

In accordance with Article 42 of the Central Bank Law No. 1211, the Central Bank of the Republic of Türkiye (TCMB) is required to notify the Government in writing and explain to the public the reasons for any deviation from the inflation target and propose solutions if the target is not met. With the 2025 data remaining above the determined "uncertainty range," that expected letter of admission has been published.

DISINFLATION EXISTS BUT HAS NO EFFECT

According to the Central Bank's analysis, the process of reducing the rate of price increases (disinflation) that began in June 2024 continued in 2025, but targets could not be approached. The prominent reasons for "failure" in the letter are as follows:

FOOD AND NATURAL DISASTERS: Agricultural production fell due to drought and frost events. This decline, especially in the third quarter of the year, pushed up kitchen expenses and food inflation.

RIGIDITY IN THE SERVICE SECTOR: The habit of setting prices based on past inflation in items such as rent and education could not be broken. "Compensatory hikes" following past ceiling price applications inflated annual rates.

PUBLIC PRICE HIKES: Adjustments in managed/directed prices such as tobacco products, natural gas, and tap water kept inflation alive.

EXPECTATIONS DID NOT IMPROVE: The fact that consumers' and the market's belief (expectations) that inflation would fall remained above the targets slowed the process.

"BACK-AND-FORTH" TRAFFIC IN INTEREST RATES

The TCMB made sharp maneuvers in the interest rate corridor throughout 2025. According to the technical data in the letter, the interest rate traffic was shaped as follows:

JANUARY - MARCH: The one-week repo auction rate, which is the policy rate, was reduced by 500 basis points to 42.5%.

APRIL: An interest rate hike was implemented due to risks in the market. The policy rate was raised to 46%, and the overnight lending rate was raised to 49%.

YEAR-END AND 2026: With the 800-basis-point reduction series that began after June, the interest rate was lowered to 38% in December 2025 and to 37% in January 2026.

BUDGET DEFICIT AND CURRENCY-PROTECTED DEPOSITS

The letter provided information that the ratio of the budget deficit to national income was 2.9% in 2025. Furthermore, it was emphasized that macroprudential policies (measures to protect economic stability) aimed at terminating Currency-Protected Deposit (KKM) accounts and increasing the share of Turkish lira deposits are continuing.

Open Letter Sent to the Government in Accordance with Article 42 of Our Bank's Law: https://t.co/fMC5ifOl3u

— Central Bank (@Merkez_Bankasi) March 19, 2026

News Source: 12punto