Türkiye | The CBRT keeps interim inflation targets

Summary

In the first inflation report of the year, the Central Bank (CBRT) maintained their interim inflation targets (36% by end 2024 and 14% by end 2025). We expect the policy rate at 45% throughout the year although the possibility of a rate hike above 45% remains.

Key points

• Key points:
• The CBRT assessed the existing monetary tightening level was adequate to establish the targeted disinflation path.
• Even though the recent minimum wage hike was above their previous assumption, the expected improvement in the underlying inflation trend was the main reason not to revise the current targets.
• We eliminate our previous downward bias and evaluate that risks are now balanced on our year-end inflation forecast of 45% in a range of 38-52% with 70% confidence band on the back of strong inertia especially in services prices, high inflation expectations and still ongoing positive output gap.
• If the monthly inflation trend proves to be stickier, especially in February and March, we evaluate credit policies and additional quantitative tightening measures will be primarily preferred.
• We think that the signaling impact will remain key and a clearer commitment (an explicit rate hike signal rather than the reassessment on the monetary stance) will enhance the monetary transmission mechanism.

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