Türkiye on brink of disinflation, central bank head says

After hitting a peak in May, the inflation rate in Türkiye will decrease significantly, said the Turkish Central Bank governor, adding that his country is on the brink of disinflation.

Fatih Karahan noted that the bank began a monetary tightening process last year.

"While the initial rise in inflation in the post-pandemic period was driven by supply chain problems and rising energy prices due to the war in Ukraine, the subsequent period was characterized by high demand," he said at the global First Albaraka Summit in Istanbul, titled Global Prospects for Islamic Economics: Fundamentals and Needs.

"High demand conditions led to a significant increase in the share of domestic demand in the growth composition and a significant deterioration in the current account balance as consumption and gold imports soar," said Karahan.

He stressed that the gradual and strong monetary tightening process that the bank launched in June was reflected in financial conditions as expected, and in this environment, the return on Turkish lira assets increased and the tendency toward savings started to increase.

In this framework, while the contribution of consumption to growth declined, the negative effect of net exports on growth weakened and the current account deficit declined from around $60 billion to $30 billion, he said.

Karahan noted that in this process, the bank's reserves increased by more than $40 billion and exceeded $140 billion.

"In parallel with this development, the Central Bank's foreign currency liabilities declined significantly and a significant improvement was realized in foreign exchange liquidity," he said.

The main determinant of the monetary policy stance will continue to be the realization of the disinflation process, he said, noting that during this process, the bank will resolutely maintain its tight monetary policy stance until the underlying trend of monthly inflation declines significantly and permanently.