06.11.2026 21:01
Central Bank Governor Fatih Karahan said that rent inflation, which was at 66 percent last year, fell below 40 percent in October this year. Noting that the slowdown in rents stood out in the decline in services inflation, Karahan stated that the current outlook indicated that the decline in rent inflation would continue in the coming period.
Fatih Karahan, Governor of the Central Bank of the Republic of Türkiye (CBRT), made a presentation at the “Economy Meeting” event organized by the Young Business People Association of Türkiye (TÜGİAD) Ankara.
Stating that price stability facilitates long-term planning and improves the investment and production environment, Karahan said: “Supply-side shocks continue to affect the inflation outlook, particularly through energy prices. These pressures limit the improvement in headline inflation. On the other hand, the slowdown in domestic demand due to our tight monetary policy supports disinflation.”
“WE WILL RESOLUTELY MAINTAIN THE MONETARY TIGHTNESS REQUIRED BY DISINFLATION UNTIL PRICE STABILITY IS ACHIEVED”
Pointing out that the decline in inertia in services, especially in rents, also contributes to this process, Karahan said: “Under this outlook, the underlying trend of inflation has declined recently. We are closely monitoring economic developments with a broad data set. By evaluating the underlying trend of inflation, demand conditions and expectations together, we focus on the medium-term inflation outlook. We maintain our cautious stance against upside risks to inflation. We will resolutely maintain the monetary tightness required by disinflation until price stability is achieved.”
Noting that oil prices, which hovered around 70 dollars at the beginning of the year, recorded significant increases from time to time compared with the pre-war period and then declined somewhat, but oil prices still remain significantly above their pre-war level, Karahan said that in addition to the rise in oil prices, the increase in refinery margins strengthened pressures originating from energy prices, particularly diesel. Karahan stated that natural gas prices, which have risen again recently, have increased to about 3 times their pre-war level, and drew attention to the fact that these developments adversely affect inflation directly through energy prices and indirectly through items such as transportation services.
On the other hand, Karahan pointed out that the automatic price adjustment system (eşel mobil) limited the pass-through of sharp price increases, especially in the first months of the war, to the domestic market, and explained that the easing of cost pressures in items such as transportation, where fuel is an important input, also limited their primary effects on inflation.
“IF SUPPLY-SIDE PRESSURES SUBSIDE, DISINFLATION WILL CONTINUE IN THE UPCOMING PERIOD”
Noting that with the start of the war they took measures at the beginning of March to support tight monetary policy, Karahan continued as follows: “Thus, we aimed to limit the secondary effects that the shock could create on inflation through expectations and pricing behavior. As a result of policy steps taken in coordination, inflation began to decline again after May. As a reflection of the renewed increase in energy prices, the decline in annual inflation lost momentum recently. However, while annual consumer inflation remained close to flat in October, the decline continued in the B and C indicators, which exclude items such as energy and unprocessed food. This outlook indicates that while energy-related pressures continue, the improvement in other items continues.”
Reporting that the underlying trend, which they looked at on an annualized basis and which rose to around 30 percent during the war period, pointed to 23.7 percent as of October, Karahan said: “This level is about 6 points below the current annual inflation. The fact that the underlying trend remains below annual inflation indicates that disinflation will continue in the upcoming period if supply-side pressures subside. We evaluate this development as a reflection of the effects of our tight monetary policy stance on demand and pricing behavior.”
Emphasizing that as of October annual inflation in the main groups excluding energy remained below last year's level, Karahan said that due to the effect of the war, annual energy inflation rose to 51.4 percent, about 17 points above last year. Stating that the loss of momentum in the disinflation process this year was mainly due to the effect of geopolitical developments on energy prices, Karahan said: “Service sub-items display different trends depending on their sensitivity to demand conditions, the tendency to index to past inflation, and the degree to which they are affected by geopolitical developments.”
“THE CURRENT OUTLOOK INDICATES THAT THE DECLINE IN RENT INFLATION WILL CONTINUE”
Underlining that they saw a significant slowdown in rent inflation, where inertia had been strong in the past period, Karahan made the following statements: “Rent inflation fell from 66 percent last year to below 40 percent in October this year. Education services, another item in which rigidity is an important factor, also continued to decline. On the other hand, annual inflation in transportation services was 42.5 percent due to the indirect effects of rising energy prices. Thus, transportation services inflation was above both last year's level and this year's overall services inflation. Communication services inflation also increased by 20 points compared with last year to 43 percent and became an item that pushed services inflation upward. The slowdown in rent inflation stands out in the decline in services inflation. The current outlook indicates that the decline in rent inflation will continue.”
“VOLATILITY IN FOOD PRICES MAY CONTINUE”
Explaining that price increases in core goods that strengthened in April due to the effect of geopolitical developments slowed in the following months, Karahan said that the recent trend also fell below annual core goods inflation. Stating that the slowdown in consumption demand due to tight monetary policy and the moderate course of the Turkish lira limited the increase in core goods inflation despite supply-side pressures, Karahan said: “Food inflation, which remained high in the first months of the year and was effective in the slowdown in the disinflation process, declined along with the recovery in agricultural production, which had been affected by unfavorable weather conditions last year. However, food prices are following a volatile course due to fresh fruit and vegetables. Indeed, in October, the effect of fresh fruit and vegetable prices stood out in the course of consumer inflation. In the upcoming period, volatility in food prices may continue depending on climate conditions.”
“OUR TIGHT MONETARY POLICY LIMITED THE DETERIORATION IN EXPECTATIONS”
Drawing attention to the fact that supply-side developments, especially energy prices, demand conditions and the course of expectations will stand out in the course of inflation, Karahan explained that upside risks in energy and non-energy commodity prices continue.
Emphasizing the importance of domestic demand conditions continuing to support the disinflation process, Karahan said, “National income data for the first half of the year and recent indicators point to a weak course in domestic demand. Excluding gold, we see that retail sales growth slowed in the third quarter as of August. The nearly flat course of card spending in the third quarter also confirms this slowdown in demand. Inflation expectations are important in terms of the reflection of supply shocks on pricing behavior and the persistence of their effects. Our tight monetary policy limited the deterioration in expectations.” he said.
Karahan stated that household expectations, after increasing somewhat in the first months of the year, declined and remained below pre-war levels, and used the expressions, “However, the improvement we anticipated at the beginning of the year has not yet been achieved. This outlook continues to pose a risk for disinflation and requires us to maintain our cautious stance.”
“WE ARE CLOSELY MONITORING THE INTERACTION OF DEVELOPMENTS IN THE FUND MARKET”
Karahan touched on the effect of energy prices and geopolitical developments on inflation as well as the current account balance, and emphasized that the foreign trade deficit excluding gold and energy followed a more moderate course. Noting that, despite the negative effect of rising energy prices due to geopolitical developments, the current account deficit as a ratio to national income followed a nearly flat course, Karahan continued: “The slowdown in domestic demand, tourism revenues maintaining their strength, and the improvement in the foreign trade balance excluding gold support the current account balance. In line with these developments, we forecast that in 2026 the current account deficit-to-national income ratio will be below the long-term average. We are closely monitoring the interaction of developments in the fund market with the banking system and other financial markets. Price stability and financial stability are two complementary elements. In this framework, taking into account these developments in financial markets, we reviewed liquidity facilities. We increased the amount of funding provided through weekly repo auctions. We updated banks’ borrowing limits in the interbank money market. We reduced collateral discount rates. In addition, in order to support macrofinancial stability and banks’ liquidity management, we made a change in the reserve requirement application. By lowering the blocked amount ratios in Turkish lira reserve requirements, we provided banks with flexibility in liquidity management. We raised the credit growth limits for SME loans.”
Karahan stated that another regulation was aimed at liquidity developments that could occur in the private sector bond market, and noted: “The most important demand for these instruments was coming from investment funds. Recent outflows from funds reduced demand for private sector debt instruments. This created a risk regarding refinancing. In order to prevent this risk, we exempted loans for the redemption of private sector bonds from the growth limit. Thus, we also provided convenience to companies in liquidity management. From now on, we will continue to closely monitor financial stability and liquidity conditions and, if deemed necessary, proactively take all kinds of additional measures. When we look at portfolio preferences after the recent fund market developments, we see that confidence in the financial system and the Turkish lira continues strongly.”
“TURKISH LIRA DEPOSITS ARE INCREASING STRONGLY”
Karahan underlined that, indeed, with the effect of the tight monetary policy stance, the supportive macroprudential tool set and these measures they took, Turkish lira deposits increased strongly, and stated that in foreign currency deposits, they saw a limited increase in the corporate sector along with a volatile course. Explaining that they saw the effect of these developments in the stable course of the Turkish lira share, Karahan said, “Especially starting from the second quarter, with the acceleration of transitions to Turkish lira deposits, the share of Turkish lira deposits was above 60 percent. Recently, with outflows from money market funds largely directed to Turkish lira deposits, the Turkish lira share continues to remain above 61 percent.”
Pointing out that gross reserves, which were 210 billion dollars on February 27, declined to 158 billion dollars as of October 30, Karahan stated that 30 billion dollars of the decline in reserves after February 27 was due to the fall in gold prices.
Drawing attention to the fact that price stability is an important precondition that will prepare the ground for sustainable growth and a healthy investment environment, Karahan said that recent data confirmed the decline in the main trend of inflation under the effect of tight monetary policy. Stating that geopolitical developments keep upward risks alive, Karahan noted: “Therefore, we will continue to be cautious to ensure the continuation of our gains in disinflation. In this direction, I would like to emphasize that we will resolutely maintain the necessary tight monetary policy stance until price stability is ensured.”
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