Türkiye's central bank will stick to its tight monetary policy until inflation reaches the targeted level, its new governor said Thursday, but kept all options open, stressing that the stance would be reassessed should there be a significant deterioration in the inflation outlook.

In his first public appearance after taking the helm at the Central Bank of the Republic of Türkiye (CBRT) less than a week ago, CBRT Governor Fatih Karahan said additional interest rate hikes were not needed "at the moment" but it was too early to talk about easing.

Karahan’s remarks during the news conference to present the bank's quarterly inflation report pushed off any expectations of a quick easing cycle and reinforced analysts' views that he will remain hawkish until price gains begin to cool around mid-year.

In a policy shift after last year’s elections, the bank delivered aggressive rate hikes that took its benchmark policy rate to 45% from 8.5% in June, seeking to arrest soaring inflation, which climbed to an annual 64.9% last month.

The bank signaled last month that the tightening cycle was complete.

"We assess that we have reached the necessary level of tightness for disinflation with the level of the policy rate and other steps we have taken," Karahan, who had been a bank deputy governor since July, said in his first in-person comments as chief.

"We are determined to maintain the necessary monetary tightness until inflation falls to levels consistent with our target," he noted.

Karahan said assessments indicate that tightening measures are working and are consistent with their expectations.

But in case of any deterioration in the inflation outlook, "we will review our decisions."

"The monetary policy will be tightened if inflation expectations, pricing behavior, government spending, tax policy, wages and private consumption lead to a significant deviation from our inflation outlook expectations," he said.

'Ambitious but achievable'

During the event in Ankara, Karahan was accompanied by his deputy governors, Cevdet Akçay and Hatice Karahan, who also addressed questions from reporters and economists.

The bank stuck to the estimate from its November report that the annual inflation would ease to 36% by the end of 2024, despite expectations it might need to rise. Akçay described it as "an ambitious but achievable target."

Akçay said rather than changing year-end targets, "we are trying to implement a monetary tightening system where a 45% policy rate is enough."

Akçay summarized the condition necessary for the monetary policy to react, saying, "A halt in the improvement trend of core inflation is an alarm for us; we will take the necessary actions."

To discuss rate cuts, Karahan emphasized it is necessary for inflation to not only meet targets for this year but also for the following year.

Karahan reaffirmed expectations that price gains would maintain pace toward the mid-year before entering a steep downward trend in the second half.

"Rapid disinflation" will begin after inflation peaks in May of this year, he said. The bank forecasted that inflation would peak around 73% in May.

The bank estimates inflation will drop to 14% by the end of 2025 and fall further to 9% a year later, the governor’s presentation showed.

The inflation rate rose 6.7% on a monthly basis in January on the back of some big one-off annual price rises and a 49% minimum wage increase.

'Too early to talk about rate cuts'

Karahan said that, although January's inflation was higher than expected, the minimum wage rise alone would not derail the central bank's projections, which are lower than those of many analysts.

The bank predicts that average monthly inflation would fall below 2.5% for the year and around 1.5% in the last quarter, he stressed.

Karahan said indicators over the last three months showed the monetary policy was on the right track, adding that they are closely monitoring the rigidity in service inflation.

Highlighting a slowdown in service inflation rigidity in the last quarter of 2023, Karahan pointed out that the increase in the minimum wage exceeded the upper threshold of the forecast range.

He mentioned that wage increases and rent hikes accompanying past inflation created rigidity in service inflation but said underlying factors such as housing prices are losing momentum.

Karahan was appointed after the surprise resignation last Friday of former bank governor, Hafize Gaye Erkan, who cited the need to protect her family from what she called a media smear campaign.

The first woman to run the bank, Erkan began aggressive monetary tightening in June to cool inflation, orchestrating a U-turn after years of easing policy, in a shift also aimed at reducing trade deficits, rebuilding foreign exchange reserves and stabilizing the Turkish lira.

The economy administration is led by Treasury and Finance Minister Mehmet Şimşek and other market-friendly technocrats that Western analysts see as Türkiye's best bet as it starts winning back foreign investments.

As deputy, Karahan played a key role in designing the tightening cycle.

"We have announced that we completed the tightening cycle but it is too early to talk about a rate cut," he said Thursday.

He added that the central bank expected the easing cycle to begin slightly later than it had anticipated at its last inflation update in November.

Karahan, 42, has a Ph.D. in economics from the University of Pennsylvania and worked as an economist at the Federal Reserve Bank of New York for almost a decade, according to his biography.

He also taught as an adjunct professor at Columbia University and New York University and worked for Amazon as a principal economist in 2022.