Turkish Central Bank Governor Fatih Karahan said Wednesday that inflation expectations and the slowdown in demand will shape the inflation outlook in the coming period.
"The deterioration in inflation expectations remained limited despite the geopolitical backdrop," Karahan said during a presentation titled "Inflation and Macroeconomic Outlook" in London.
Karahan said food and energy inflation, which rose due to supply shocks, could ease as geopolitical tensions subside, while slowing demand and declining inertia support disinflation in durable goods and services.
He noted that the weakening in demand is expected to improve pricing behavior, while higher energy prices have increased Türkiye's import bill. However, slower domestic demand has limited pressure on the current account balance, he said.
Karahan also said exports have remained resilient, partly due to demand being partially redirected.
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.
Karahan said short-term inflation dynamics are being shaped by supply developments in food and energy, easing inertia in services and the slowdown in demand.
Food inflation remains volatile and has recently followed an elevated course, he said, while declining inertia in rent and education items has supported disinflation.
He added that the decline in household inflation expectations has become more widespread, while economic activity has slowed and the capacity utilization rate remains weak.
Karahan said indicators such as retail sales volume and total card spending point to a slowdown in economic activity, while loan growth has also decelerated.
On the current account outlook, Karahan said the foreign trade deficit narrowed in the second quarter, while the impact of geopolitical developments on tourism has remained limited.
He said the current account deficit remains moderate compared with its historical average, while households' demand for foreign currency has stayed limited.
