Citizens' inflation expectations are not broken: 'Prudent' interest rate message from the Center

Fatih Karahan, Governor of the Central Bank of the Republic of Turkey (CBRT), gave clear messages regarding monetary policy in his presentation in Ankara. Warning that monetary policy will be tightened further in case of a significant and permanent deterioration in the inflation outlook, Karahan emphasized that the current tight stance will be maintained until price stability is fully achieved.

Karahan made a presentation titled "Inflation and Monetary Policy"; He made evaluations regarding domestic demand, current balance, financial conditions and demand for Turkish Lira. Pointing out that geopolitical tensions keep energy prices high and are one of the determining factors in 2026 inflation, the CBRT President stated that, on the other hand, the slowing domestic demand limits inflationary pressures.

CITIZENS' EXPECTATIONS WERE NOT BREAKED

The data shared by Karahan also revealed the deep gap between the market and the citizens' inflation expectations. As of October, while the 12-month annual inflation expectation was at 23.9 percent among market participants, this rate rises to 31.8 percent in the real sector and 43.8 percent in households (citizens). This high course of expectations is cited as one of the main reasons why the Central Bank maintains its "cautious" stance in monetary policy. Karahan underlined that the meeting-based approach, focusing on inflation data, will continue in the size and timing of interest rate steps.

'EŞEL MOBILE' BRAKE

Reminding that annual consumer inflation, which reached 75.5 percent in May 2024, decreased to 29.8 percent as of October 2026, Karahan stated that the main trend of inflation in October was 1.8 percent monthly. Karahan also noted that the fuel mobile system limited the effect of the global energy shock on prices and reduced the cumulative increase in the March-October period by 12.6 points.

SME CREDIT LIMIT HAS BEEN FLEXED

Sharing the current data on reserves, Karahan stated that gross international reserves reached 188 billion dollars, and reserves adjusted for the effect of gold prices reached 158 billion dollars. Arguing that the tendency of domestic residents to switch to TL continues, Karahan stated that the share of TL in deposits and investment funds increased to 62.1 percent.

On the other hand, the Central Bank took new steps within the macroprudential framework in order to reduce financial risks and balance the market. While the credit growth limit of SMEs was increased from 4.5 percent to 5 percent; A series of liquidity measures were put into effect, such as purchasing bonds based on TLREF, increasing the repo funding volume and reducing the TL required reserve blocked facility rates.