Türkiye's central bank chief says inflation expectations steady despite geopolitical risks

Turkish Central Bank Governor Fatih Karahan said on Wednesday that inflation expectations have deteriorated only modestly despite heightened geopolitical tensions, presenting the institution's "Inflation and Macroeconomic Outlook" assessment to investors in London while outlining how slowing demand and supply shocks will shape the price trajectory. "The deterioration in inflation expectations remained limited despite the geopolitical backdrop," Karahan said during the presentation.

Domestic demand and pricing behavior

Karahan noted that food and energy inflation, which accelerated due to supply shocks, remains volatile though it could ease as regional tensions subside, while slowing demand and declining inertia support disinflation across durable goods and services. He stated that the weakening in demand is expected to improve pricing behavior across the economy, while indicators such as retail sales volume and total card spending point to a clear slowdown in economic activity alongside decelerating loan growth and declining household inflation expectations.

Currency resilience and external balances

On the risk of renewed dollarization, Karahan said demand for Turkish lira assets remains strong, supported by tight monetary policy, macroprudential tools and strong foreign exchange reserves. "Residents' demand for Turkish lira remains robust. and foreign exchange reserves are strong," he said, noting that higher energy prices have increased Türkiye's import bill but slower domestic demand has limited pressure on the current account balance.

The foreign trade deficit narrowed in the second quarter, while the impact of geopolitical developments on tourism has remained limited, Karahan noted. Exports have remained resilient partly due to demand being redirected to Türkiye, and the current account deficit remains moderate compared with its historical average, according to the presentation.