Central Bank of the Republic of Turkey (CBRT) President Fatih Karahan attended the information meeting held at the Central Bank of the Republic of Turkey Campus in Istanbul Financial Center for the promotion of the fourth Inflation Report of the year, with his vice presidents Hatice Karahan, Fatma Özkul, Gazi İshak Kara and Yusuf Emre Akgündüz.
Regarding the studies on foreign exchange conversion support, CBRT Deputy Governor Fatma Özkul stated that the foreign exchange conversion support was implemented by the Central Bank in 2023 and that the main purpose of this support is to strengthen foreign exchange reserves and to encourage the conversion of foreign currency income from abroad into Turkish lira.
Expressing that there are some suggestions coming from the field, Özkul stated that increasing the foreign exchange conversion support to 3 percent is one of the suggestions coming from the field.
Özkul stated that rather than increasing the foreign exchange conversion support rate, they aim to facilitate access to this support and ensure a more efficient distribution of the resource, adding:
"In this regard, we have a new application that came into force on October 1, 2026. The first one is to facilitate access. In our previous application, there was a commitment not to buy foreign currency. We had such a condition. With this new application, we removed this condition and introduced the net foreign exchange position ratio requirement. The main purpose here was that the commitment not to buy foreign currency prevented many companies from benefiting from this support. Naturally, when this condition was removed, we ensured that the support spread to the base."
Özkul reminded that another innovation is the application of added value and made the following evaluations:
"The purpose here was to make companies that create added value in our country benefit from more incentives to companies that increase production and employment, and we made a calculation based on operating profit and labor costs, giving priority to added value. However, we saw that after October 1, 2026, some suggestions came from the field regarding this practice. Again, we took these suggestions into account immediately. In the first revision, there were some bureaucratic transactions, especially on the banks' side, which perhaps made operational processes difficult. We took various steps to facilitate these. Again, to facilitate access." "We have taken various steps to ensure that more suppliers and manufacturing companies benefit from this foreign exchange conversion support, which we offer mostly to intermediary exporter companies. Therefore, we have urgently implemented these two revisions, which also have their sub-breakdowns. We are in constant communication with sector representatives, companies and banks. We continue to make the necessary corrections and improvements, taking into account the feedback from the field and prioritizing that this support serves its true purpose."
"Price stability will play an important role in establishing a healthier structure for the industrial sector."
CBRT Deputy Governor Gazi İshak Kara, in his answer to the question about the possible effects of fund developments on domestic demand and the employment market, stated that in September 2026, the unemployment rate increased by 0.5 points on a seasonally adjusted basis to 8.5 percent, and that it has been around 8 percent for a while.
Stating that they also looked at comprehensive labor force indicators, Kara said, "The idle labor rate is relatively higher. It is around 32 percent. In addition, we are trying to make a more comprehensive assessment in the Composite Labor Market Index, where we bring together high-frequency data, the number of applications per advertisement, and many factors compiled from data such as TURKSTAT, İŞKUR, Kariyer.net and PMI." he said.
Kara stated that when looking at these data, they think that the labor market is tighter than the headline unemployment rate implies, and they are closely monitoring how this situation will progress in the future.
Stating that on the industrial side, they evaluate economic activity with both supply and demand indicators, Kara said that there are many factors affecting the outlook in the industry, the most important of which is the foreign demand outlook.
Kara stated that the protectionist policies that have increased in recent years have had a significant impact on the foreign demand side and said, "Geopolitical developments and the environment of uncertainty created by this continue to be a very important factor." he said.
Stating that there is a transformation as Türkiye develops and increases its average income, Kara said that there is a transformation from industry to services and that they see a transformation within the industry towards high, medium and high value added areas and sectors.
Kara stated that these transformations had effects on the industry and said, "In addition to these, exchange rate and financing costs are also factors that affect the performance in the industry, but it is always only one of these factors." made his assessment.
Stating that they have seen that capacity utilization rates have been slightly below historical averages in recent years and that they have decreased recently, Kara stated that they think that the important factor here is the effect of the weakening in domestic demand, but there is no loss in production capacity.
Kara made the following evaluations regarding production capacity:
"As our disinflation process progresses and our growth path reaches a more sustainable point, we see that there continues to be a capacity to meet production on the industrial side, with the effect of increasing demand. We are also aware that there has been an increase in productivity on the industrial side in recent years. This, of course, has an impact on the employment outlook. A fact that supports this is our research. We have previously shared these macroeconomic and financial conditions in a box. It shows that the companies established in tight periods are more successful and more efficient, even though they are fewer in number. This tight monetary policy we implement, the disinflation process, production and "It will enable demand and consumption activities to reach a healthier path in the long term. We believe that this price stability will play an important role in establishing a healthier structure for both the employment market and the industrial sector with a more sustainable growth path."
"(Headline inflation) will be important in our interest rate decisions"
CBRT Deputy Governor Hatice Karahan gave an additional answer to the same question and touched upon the effects of current fund developments on the interest rate outlook.
Giving information about how interest rate reduction decisions are made while looking at the medium-term outlook of inflation, Karahan stated that they base many data-oriented indicators in the meetings.
Karahan stated that some volatilities can be seen in inflation data on a monthly basis and said, "We can see these volatilities in food, especially in energy, with periodic seasonal effects in the dynamics specific to our country." he said.
Citing the annual energy prices in October as an example of this situation, Karahan noted that the annual inflation in energy prices increased to 51 percent, an increase of 17 points compared to last year's inflation.
Karahan emphasized that it is much more important to look at the main trend when these are excluded, and stated that they think that indicators such as the main trend and median reflect the inflation outlook better.
Stating that there has been a very significant improvement in the main trend since June, Karahan made the following evaluations:
"When we look at the main trend of inflation in total, we are talking about a main trend that decreased from 2.3 percent to 1.8 percent. This is also seriously reflected in the core goods. This is also observed on the services side. When we look at the annualized main trend since June, we are faced with a 7-point decline. This is a positive development. However, we see a limited reflection of this on the headline, we saw a 2-point reflection. As supply-side shocks and geopolitical tensions decrease, this is seen more clearly in the headline inflation. "This will be important in our interest rate decisions."
"(Household inflation expectations) We expect the improvement to increase"
Hatice Karahan stated that they will continue to monitor the effects of the developments in the fund market on domestic demand and said, "A weakening from here is likely to increase the downside risks on inflation. We need to clearly see the effects of a potential cooling here on inflation in order to reflect it in our interest rate decisions. We will make our policy decisions by evaluating both the upside risks and such downside risks." he said.
Stating that they see the risks as balanced in this regard, Karahan said, "Finally, there are expectations that are important for our decisions. It is important for us to see an improvement in inflation expectations. Household expectations showed a more delayed improved trend here." he said.
Karahan pointed out the recent decline in households' inflation expectations and explained that, despite this, they could not fully achieve the improvement they expected at the beginning of the year due to geopolitical developments.
Hatice Karahan said, "We expect the improvement here to increase a little more in the coming period with the normalization of geopolitical developments. This means that inflation expectations will improve in the coming period and the reflection from the main trend to the headline will support the improvement in expectations, which will play an important role in our decisions in this sense." he said.
"We will continue calibration going forward"
CBRT Deputy Governor Yusuf Emre Akgündüz, on the question of how worried they are about growth, said that they see the macroprudential steps announced by the Central Bank yesterday as a partial normalization.
Expressing that these instruments support the policy rate, Akgündüz made the following evaluations:
"The main purpose of the credit growth limit is actually to act as an insurance against excessive credit growth. But there is a good side of these instruments, they work very fast. We had already made a serious tightening here during the war period when other risks on inflation and macro financial risks emerged due to energy and prices. In fact, it had an effect. But the negative side is that it slightly weakens the monetary transmission. We think that we see such an effect, especially when we think it is unnecessarily tight."
Noting that there is currently a more moderate course in the credit market compared to the past, Akgündüz said, "In that sense, we evaluated that there was room for some normalization and to strengthen the monetary transmission, and we took yesterday's step. But we will continue calibration for the future. Since it is a supportive tool, we will evaluate it together with all other monetary policy tools." he said.
