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By Ezgi Erkoyun and Jonathan Spicer
ISTANBUL (Reuters) -Turkey's central bank governor Fatih Karahan said on Friday the bank is "not on autopilot" after two straight interest rate cuts and its decisions are based on data, in comments after the bank raised its year-end inflation forecast to 24% from 21%.
"We can pause or change the size of policy rate moves," Karahan told a news conference as the bank presented its quarterly inflation report in Istanbul. "Rate cuts are made in line with data."
Karahan delivered the hawkish message at a time when both inflation and interest rates are heading lower and authorities are predicting the coming end of years of price and currency turmoil.
"We make our policy decisions prudently on a meeting-by-meeting basis with a focus on the inflation outlook," he said.
The lira was slightly weaker on Friday at 35.9850 against the dollar, having closed at 35.8660 the previous day. Bonds and stocks were little changed.
Economists predict that the Turkish central bank (TCMB) will keep lowering its benchmark rate from the current 45%.
"I expect the TCMB to continue to cut interest rates by 250 basis points in March. Of course, this is if February inflation does not exceed expectations," said Yatirim Finansman chief economist Erol Gurcan, forecasting a month-on-month inflation reading of around 3%.
Data this week showed monthly inflation climbed more than expected to 5.03% in January due to a minimum wage hike and several new year price revisions. Annual inflation, which peaked above 75% last May, fell to 42.12% in January.
FACTORS BEHIND REVISION
Karahan said the bank left its forecast for the inflation rate at the end of 2026 unchanged at 12% and predicted an 8% rate by the end of 2027.
"This revision (for 2025) is due to factors that are relatively beyond the control of monetary policy. Thus, it does not signal any easing of the monetary policy stance," he said.
Among the leading factors for this year's revision were the increase in the weight of the services group in the CPI basket, along with food prices and a rise in state-administered prices, the governor added.
The bank's inflation battle began in June 2023 when it launched a series of aggressive interest rate hikes that totalled 4,150 basis points taking the key rate to 50% last March. It was an abrupt shift to orthodoxy after years of low rates aimed at stoking growth.
After cuts of 250 basis points each in December and January, the policy rate now stands at 45% and is expected to be lowered to 30% by the end of the year.
President Tayyip Erdogan, who in the past was viewed as influencing monetary policy, had backed the previous unorthodoxy that triggered currency crashes and soaring inflation. He has since supported the current policy steps.
(Reporting by Ezgi Erkoyun, Can Sezer, Nevzat Devranoglu and Jonathan Spicer; Editing by Daren Butler, Toby Chopra and Hugh Lawson)
