Macro and Politics

*The CBT Governor Fatih Karahan met with representatives of the business community and civil society in Gaziantep as part of the “Monetary Policy and Macroeconomic Outlook” meetings. Karahan emphasized that timely and high-quality information gathered through direct engagement with the real sector feeds directly into monetary policy decision-making, with expectations and recommendations also shared with relevant public institutions. Highlighting recent policy gains, Karahan noted that CBT reserves have increased by approximately USD145bn, while the balance of FX-protected TL deposits (KKM) has declined to near zero. On the inflation front, he underlined that monthly inflation remained below 1% for two consecutive months for the first time in 63 months, adding that the disinflation process has become broad-based since May 2024. He also noted taht while rent and education components continue to weigh on services inflation, the decline in commercial rent inflation has eased cost-side pressures and contributed to an improvement in inflation expectations. Karahan reaffirmed that the tight monetary policy stance will be maintained, noting that easing inflation expectations have begun to translate into lower credit and bond yields. On external trade, he stressed that external demand remains the primary driver of exports, noting that a 1% decline in the real exchange rate increases exports by 0.2%. Karahan concluded that achieving price stability will improve the investment climate and lead to a sustained reduction in real sector costs, underscoring that low inflation is critical for durable cost relief across the economy.