Turkey Central Bank Signals Continued Tight Policy as Inflation Expectations Rise

Turkey’s central bank, led by Governor Fatih Karahan, warned that a persistent deterioration in inflation would prompt further tightening of monetary policy. Speaking in Konya, Karahan said the bank will keep “tight policy until price stability is achieved” and added that “if inflation shows a clear and lasting break, the stance will be tightened.”

TCMB reserves have risen sharply, with an increase of more than $100 billion reported and total gross foreign‑exchange reserves reaching $171.5 billion, while the dollar‑linked deposit balance (KKM) has fallen to near zero. The governor highlighted that the bank’s engagements with over 2,700 firms in the past five years help inform policy decisions.

A market survey of 72 participants showed that consumer‑price inflation expectations for the year rose to 28.94 % from 27.53 %, and expectations for the next 12 months increased to 23.82 % from 23.39 %. The expected policy rate for the first meeting is about 37 % and around 30 % for twelve months ahead. Deutsche Bank adjusted its outlook, pushing back expected rate cuts to September and keeping its year‑end policy‑rate forecast at 35 % while raising the year‑end inflation projection to 26 %.

The heightened inflation outlook and the bank’s “extra tightening” message weighed on Turkey’s equity market. The BIST 100 index closed down 1.9 %, with banking and communications sectors posting the biggest losses. Analysts linked the sell‑off to the central bank’s stance, rising oil prices and geopolitical risks in the region.