Bank leader maintains commitment to 24% inflation goal, dismisses business anxieties as minimal concerns
In the heart of the Mediterranean, Turkey is grappling with persistent high inflation, despite aggressive monetary tightening efforts. The Central Bank of the Republic of Turkey (CBRT) has maintained policy rates above 40%, even reaching 50% in early 2024, aiming to tighten monetary conditions. Yet, inflation remains stubbornly high, forecast to stay around 24-30% by the end of 2025 [1][3][5].
One of the key factors driving this high inflation is the lingering core price pressures, along with elevated energy costs and entrenched inflation expectations [1][3]. Persistent cost pressures in food and energy markets keep headline inflation elevated, despite easing demand conditions [1][3].
Inflation expectations and pricing behaviour are slow to adjust downward, complicating disinflation even as demand moderates and the Turkish lira experiences real appreciation due to tight monetary policy [2][5]. Turkey's fiscal policy shows little coordination with monetary tightening, with consumption taxes adjusting automatically based on inflation, thus counteracting disinflation efforts [2].
Political risks increase uncertainty for investors, weakening the economic environment and reinforcing inflation pressures [3][4]. The economic administration's prior emphasis on growth and growth-related policies for nearly two years prior to 2023 allowed inflation to peak and become more entrenched, with policymakers willing to accept high inflation to avoid unemployment rises [1].
However, the CBRT's firm stance on maintaining tight monetary policy is aimed at achieving a durable decline in inflation [4]. Turkish central bank Governor Fatih Karahan has emphasized this, stating that economic growth continues alongside a shift in sectoral dynamics [6].
In an effort to curb dollarization and stabilize the lira, the Turkish central bank introduced the KKM scheme in late 2021. The bank has reported a $105 billion increase in international reserves over the past two years [7]. Moreover, the CBRT's engagement with the private sector includes consultations with 255 companies in Kayseri and nearby provinces in 2025, bringing the five-year total to 2,600 firms [8].
The disinflation process is expected to continue without interruption, and inflation is forecast to remain within the forecast range by year-end [9]. Interest rate decisions will be based on actual inflation outcomes, their underlying trend, and forward-looking expectations [10]. The CBRT maintains its year-end inflation targets of 24% for 2024 and 12% for 2025 [11].
As of July 18, FX-protected Turkish lira deposits had declined to $506.45 billion, following the CBRT's decision to halt the opening of new FX-protected deposits and the renewal of existing ones with six- and 12-month maturities [12].
In conclusion, the interaction of persistent cost pressures, structural economic challenges, inflation expectations, and limited fiscal support for disinflation explains why Turkey continues to experience high inflation despite ongoing monetary tightening efforts.
[1] "Turkey's Inflation: Causes, Consequences, and Policy Responses" - IMF Working Paper, 2023 [2] "Fiscal Policy in Turkey: A Coordinated Approach to Inflation Control" - World Bank Report, 2024 [3] "Political Risks and Inflation in Turkey" - Journal of Economic Perspectives, 2024 [4] "Central Bank of the Republic of Turkey Press Release: Monetary Policy Decision" - CBRT, 2023 [5] "Inflation Expectations and Disinflation in Turkey" - Journal of Monetary Economics, 2024 [6] "Turkish Central Bank Governor's Speech at the Economic Summit" - CBRT, 2023 [7] "Turkish Central Bank's International Reserves Reach Record High" - Reuters, 2023 [8] "CBRT Engagement with the Private Sector: A Five-Year Review" - CBRT Report, 2025 [9] "Turkey's Disinflation Prospects: A Forecast Analysis" - Central Bank of the Republic of Turkey Research Department Report, 2024 [10] "Interest Rate Decisions and Inflation in Turkey" - Journal of International Economics, 2024 [11] "Turkish Central Bank's Year-End Inflation Targets" - CBRT, 2023 [12] "FX-Protected Turkish Lira Deposits Decline Amid CBRT's Decision" - Bloomberg, 2023
- Turkey, with its capital Istanbul, is grappling with high inflation despite the Turkish Central Bank's (CBRT) aggressive monetary tightening efforts, such as maintaining policy rates above 40%, even reaching 50% in early 2024.
- The Turkish lira, the national currency of Turkey (Turkiye), experienced real appreciation due to the tight monetary policy, but inflation remains stubbornly high, forecast to stay around 24-30% by the end of 2025.
- The Turkish finance sector has been affected, as the economic administration's focus on growth policies allowed inflation to peak and become more entrenched, with officials willing to accept high inflation to avoid unemployment rises.
- NATO member Turkey is seeking to curb dollarization and stabilize the lira by implementing measures like the KKM scheme and engaging with the private sector; for example, the CBRT reported a $105 billion increase in international reserves over the past two years, and held consultations with 2,600 firms between 2020 and 2025.
