The Central Bank of Turkey is gearing up for a prolonged cycle of interest rate reductions in 2025, aiming to stimulate an economy grappling with recession and high inflation. To foster collaboration and transparency, Governor Fuat Karahan is scheduled to meet with companies and non-governmental organizations (NGOs) next week, emphasizing improved communication with local stakeholders.
A Shift Towards Local Engagement
This year, the central bank plans to intensify interactions with business leaders nationwide to align expectations as it implements policies to lower borrowing costs. This approach comes after criticism that officials, including Treasury and Finance Minister Mehmet Şimşek, prioritized foreign investors following the adoption of market-friendly policies in mid-2023.
Governor Karahan, addressing allegations of preferential treatment for foreign stakeholders, stated last November, “The central bank shares the same information with everyone, literally.” To reinforce this stance, Karahan will hold a key meeting on January 17 in Eskişehir, focusing on monetary policy and macroeconomic forecasts. Similar sessions are planned across regions with significant economic activity.
Economic Landscape and Inflationary Pressures
Turkey’s economy entered a technical recession in the third quarter of 2024 while contending with persistent inflation. The annual inflation rate eased slightly to 44.4% in December, down from 47% in November, yet remains nearly nine times the official target. The central bank’s recent interest rate reduction to 47.5%—the first in two years—marks the beginning of an anticipated series of cuts.
Balancing Expectations
Households and businesses expect inflation to rise over the next year, diverging from the central bank’s 21% inflation target for 2025. Investors predict interest rate reductions at each of the next eight monetary policy meetings. However, demand-driven inflation risks remain, as consumer behavior could exacerbate price pressures.
In response, the central bank acknowledged potential challenges, stating that future interest rate cuts might not proceed at the same pace. By engaging directly with local stakeholders, policymakers aim to manage expectations and navigate the complexities of balancing economic recovery with inflation control.
This initiative underscores the central bank’s commitment to fostering trust and inclusivity as it steers Turkey’s economy through a critical transition period.