Turkey’s Central Bank Governor Aims for Long-Term Inflation Control Before Rate Cuts

Summary:
Turkey’s central bank governor, Fatih Karahan, emphasized his commitment to meeting inflation targets beyond 2025 before considering interest rate cuts. Despite inflation slowing in June, Karahan maintains a cautious stance, aiming for significant improvements in inflation expectations. He aims to achieve credibility by hitting this year’s inflation target, projecting a decline to 38% by year-end and further drops by 2025 and 2026. Karahan, a former Federal Reserve Bank economist, is navigating the aftermath of an era of cheap money that led to high inflation and currency crises. The bank’s tight policies have appreciated the Turkish lira, but Karahan warns against excessive currency gains. The bank plans to manage reserves and prioritize price stability, avoiding premature easing and maintaining restrictions on offshore currency swaps to prevent financial system liquidity issues.