Central Bank of the Republic of Türkiye: speeches

1. Stance and global backdrop

Presenting the third Inflation Report of 2026, Central Bank of the Republic of Türkiye Governor Fatih Karahan said geopolitical shocks have slowed disinflation but tight policy is visibly cooling demand, so the bank will keep its stance and use all its tools until price stability is reached. Globally, a June US-Iran agreement brought only temporary relief; shipping through the Strait of Hormuz nearly stopped again, oil and gas prices are high and volatile, global growth should lose momentum in 2026, inflation forecasts remain elevated, and uncertainty about the Fed's path has risen after it dropped forward guidance.

2. Weak demand, stronger exports

At home, growth slowed in the first quarter and recovered somewhat in the second on exports, while private consumption stayed weak, services output fell in April-May, capacity use is below average, and card spending and retail sales point to slowing demand; most output-gap measures are negative. Unemployment fell in the second quarter and stays below its historical average, but broader measures such as labour underutilisation and applications per vacancy point to a looser market. Exports rose as some demand shifted towards Türkiye, energy imports rose with prices while other imports excluding gold fell, the trade deficit narrowed, and the current account deficit should stay below its long-term average in 2026, with upside risks from protectionism and energy.

3. Inflation details

Annual inflation was 31.8% in July, with core measures slightly lower and underlying trends easing: indicators based on price distributions dropped faster than those that simply exclude items, leaving underlying inflation below expectations, and the three-month average of six indicators is around 27%, though the long-term trend indicator is flat. Administered prices have run above the consumer price index. Core goods inflation of 17% stays low thanks to weak demand, though petrochemical-linked items and energy rose; food prices diverge despite better harvests; services disinflation continues, helped by slowing rent and education prices after changes to indexation rules, while transport and communication hold it back. Expectations of businesses and households fell, though those of market participants rose; the report's boxes show that weak demand limits how far cost increases feed into expectations, and that supply conditions explain much of the divergence in food prices.

4. Policy and forecasts

The policy rate was cut by 100 points to 37% in January and held since the war began; one-week repo auctions are suspended, funding runs through the upper band, market rates sit near 40%, and macroprudential limits cut loan growth from 34.6% to about 25% while lira deposits reached 62% of the total. Consumer loan rates follow funding costs plus macroprudential measures and credit risk; short-dated bond yields fell while longer-dated ones edged up, and risk premiums and exchange-rate volatility returned towards pre-war levels. Gross reserves rose by 30 billion dollars to 185 billion. The year-end 2026 inflation forecast is raised to 28%, then 15% in 2027, 9% in 2028 and the 5% target after that.

5. Assumptions and risks

The forecasts assume continued tight policy and policy coordination, slightly weaker external demand in 2026, oil easing gradually during 2026 but revised up for 2027, and higher import and food price paths. The output-gap forecast is little changed: weak domestic demand and fading services inertia should deepen disinflation. Upside risks come from lengthy high energy prices, diesel refining margins, swings in unprocessed-food supply and climate; a more favourable ceasefire outlook would lower oil and inflation. Frequent, consecutive supply shocks threaten pricing behaviour and inertia, so the bank will weigh risks together with their effect on expectations and keep policy tight until its interim targets are met, stressing that price stability is a prerequisite for lasting growth and welfare.