Turkish central bank is determined to combat increasing prices and will stick patiently to its tight policy stance, Governor Fatih Karahan said, as the bank’s aggressive policy starts to bring down inflation.

“We will maintain tightness and wait for data and expectations to get in line with our disinflation path. We think we still have some way to go in this regard,” Karahan told Reuters.

“We want to see a significant and sustained fall in the underlying trend of monthly inflation. We are extremely determined to bring down inflation,” Karahan said in an interview late Wednesday.

Türkiye’s annual inflation rate began to ease in what is expected to be a sustained fall by dipping more than expected to 71.6% in June, the official data by the country’s statistical institute showed earlier Wednesday.

The monthly reading, the central bank’s preferred gauge, cooled markedly and slowed to 1.64% from 3.37% in May, below the overall market expectations, the data showed.

The annual measure is down from 75.45% in May, which marked the highest since November 2022.

The Central Bank of the Republic of Türkiye (CBRT) held policy steady in its last committee meeting last week, vowing to act if the inflation outlook worsens since raising its policy rate by 500 basis points to 50% in March.

The bank has raised the rate by 4,150 basis points since June last year, reversing a low-rate policy in a bid to contain the stubborn inflation. Officials and analysts predict a gradual slide in consumer price inflation in the remainder of 2024 following a series of interest rate hikes.

Some of the analysts predicted much steeper declines in July and August, as the June reading marked the start of the long-awaited disinflation process.

“We are seeing signs of demand rebalancing and its impact on prices. It is not healthy to draw conclusions from a single data point in this period of high volatility. We act with the determination and caution of a central bank,” Karahan also said.

QNB Finansbank said Karahan’s comments emphasized it was too early to perceive the June inflation dip as a trend change and aimed “to prevent expectations of an early interest rate cut.”

Domestic demand

The bank in the summary of its Monetary Policy Committee (MPC) meeting published on Wednesday reiterated that the “recent indicators confirm that domestic demand, albeit still at inflationary levels, continues to slow down.”

It also cited several sets of data published in the recent period that indicated the slow cooling of some parts of the economy, signaling that the strong tightening has taken effect.

“In April, the retail sales volume index fell on a monthly and quarterly basis. During the same period, the trade sales volume index posted a sharper decline. Trade of motor vehicles and wholesale trade, the other two main components of the index along with retail trade, also decreased,” the central bank said.

The CBRT also cited the effects of religious holidays and administrative leaves on demand, saying they “in the second quarter obscured a clear picture regarding the extent of the slowdown in demand.”

“Card spending decreased in April, but when the May-June period is included, it continued to increase on a quarterly basis, albeit at a slower pace,” the bank added.

With local and foreign economists widely expecting inflation to drop further in the coming months, some forecast the bank to deliver rate cuts later this year or early 2025.

The central bank expects disinflation to be established in the second half of the year, forecasting an end-year rate of 38% due to its tight stance. In a Reuters poll, economists expect the inflation rate to fall to around 42% at the end of this year.

Following the inflation data on Wednesday, some banks, such as JPMorgan and Barclays, have revised their expectations for the rate slightly downward.

The U.S. banking giant JPMorgan, in its report, said it expected inflation to fall to 60% in July and 50% in August due to base effect, changing its year-end estimate from 43.5% to 42.5%. For 2025, it moved the expectation slightly down to 25% from earlier 25.2%.

Barclays also announced in the report it shared after the inflation data that it reduced its year-end inflation forecast from 44.5% to 44%. The 2025 year-end expectation was 30.8%.

The officials have said they expected the decline in inflation to accelerate in the second half of the year, conveying the aim to bring it down to single digits by 2026.

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