Foreword
Fatih Karahan, Ph.D.
Governor
Central banks make the greatest contribution to social welfare by achieving price stability. 2024 marked a year in which the Central Bank of the Republic of Türkiye (CBRT) took decisive steps with this in mind, initiating and sustaining the disinflation process.
In 2024, global growth showed a limited improvement, while the supply-demand balance in labor markets continued to normalize. Global inflation declined further, and the stickiness in global services inflation alleviated. Nevertheless, this stickiness kept the upside risks to global inflation alive. While rate cuts are ongoing in advanced and emerging economies, central banks are expected to adopt a cautious approach by maintaining their rate cuts in a way that preserves the favorable trend in the inflation outlook.
As projected by the CBRT, cumulative inflationary effects faded as of the second half of 2024, and the disinflation process began. Domestic demand slowed further during this period, reaching levels supportive of disinflation. The current account deficit kept narrowing on the back of this slowdown. Core goods inflation remained low, and the improvement in services inflation was more pronounced. While inflation expectations and pricing behavior displayed an improving trend, they continued to pose risks to the disinflation process. The decisive monetary policy stance pursued throughout the year reduced the underlying trend of monthly inflation and ensured that the disinflation process continued, albeit at a slower pace than envisaged, through rebalancing in domestic demand, real appreciation of the Turkish lira, and the improvement in inflation expectations.
From March to December 2024, the CBRT maintained its tight monetary stance and kept the policy rate constant at 50%. In view of inflation realizations and expectations, the policy rate was revised down to 47.5% in December to ensure the tightness needed for the intended disinflation process.
In 2024, the CBRT kept implementing macroprudential policies to enhance the effectiveness of monetary transmission against the divergence in expectations of economic units and possible volatility. Accordingly, in order to enhance the functionality of the market mechanism, strengthen macro financial stability, and support the monetary transmission mechanism, the CBRT continued to take simplification steps within the framework of macroprudential policies in 2024, particularly the repeal of the regulation on securities maintenance. The repeal of this regulation reinforced the significance of the bond yield curve to the monetary policy stance. Furthermore, the rise in the share of Turkish lira deposits in total deposits brought about by the macroprudential measures and the targeted switch from FX-protected deposit (KKM) accounts to Turkish lira deposits supported the monetary policy stance in 2024 as well. 2025 will see further simplification steps, with an evaluation of the impact of all components of the current macroprudential framework on inflation, interest rates, exchange rates, reserves, expectations, and financial conditions.
In 2024, the Monetary Policy Committee announced plans to hold eight meetings in 2025 in line with a pre-announced calendar, emphasizing that its decisions would be made prudently on a meeting-by-meeting basis with a focus on the inflation outlook. Furthermore, the “Central Bank of the Republic of Türkiye Research Agenda for 2025-2027” was prepared and shared with the public in 2024 with the aim of shaping policy decisions based on scientifically sound analyses and contributing to sustainable price stability. Issues related to the economic impact of factors that interact with CBRT policies, such as digitalization, artificial intelligence, and climate change, were incorporated into the research agenda. The CBRT will make the most efficient use of its support activities for academic research to strengthen policy design processes.
In 2025, the CBRT will set the level of the policy rate to ensure the tightness needed for the intended disinflation process. Monetary policy tools will be used effectively in case of a significant and persistent deterioration in inflation. The monetary transmission mechanism will be supported with additional macroprudential steps in the event of unanticipated developments in credit and deposit markets, liquidity conditions will be closely monitored in view of possible developments, and sterilization tools will remain in effective use.
Price stability is a prerequisite for sustainable growth and enhanced social welfare. The CBRT will maintain the disinflation process in 2025 and carry on working with commitment and diligence to bring inflation down in tandem with the intermediate targets.