The Turkish central bank chief on Tuesday said the monetary authority will remain firm on its tight policy stance until inflation aligns with the policymakers’ targets.

"We will not allow a permanent deterioration in the inflation outlook under any circumstances," Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan said.

Karahan was speaking before the Parliament’s Planning and Budget Commission.

Türkiye's inflation reached an annual 75% in May, in what is said to mark the peak before a series of interest rate hikes and a relatively stable lira bring relief.

Policymakers see it entering a steep downward trend as of this month.

"With the adverse base effect, inflation peaked in May. We have reached the end of the transition period that we frequently emphasized in our policy communication," said Karahan.

Last month, the central bank raised its year-end inflation forecast to 38% and said it would "do whatever it takes" to prevent the outlook from deteriorating further.

Karahan said the central bank’s determined stance in monetary policy will reduce the main trend of monthly inflation through the balancing of domestic demand, the real appreciation of the Turkish lira, and the improvement in inflation expectations.

"Hence, we will enter a period of disinflation with a stable decline in inflation for the remainder of the year," he noted.

The bank has raised its policy rate by 4,150 basis points since June last year and vowed to tighten it more if there is "a significant and persistent deterioration" in the outlook.

The tightening since after last May's presidential and parliamentary elections marked a reversal of years of loose monetary policy.

"We are determined to maintain our tight monetary policy stance until inflation drops to levels consistent with our targets," said Karahan.

The bank will have its eyes on two main conditions, according to the governor.

"First, a marked and permanent decline in the main trend of monthly inflation; and second, the convergence of inflation expectations to the projected forecast range," he stated.

The bank stands ready to tighten its policy further "if a significant and permanent deterioration in inflation is foreseen."

"During the disinflation process we will experience from June onward, we will continue to do whatever is necessary to reduce inflation in a manner consistent with the interim targets we have set," said Karahan.

The governor said domestic demand remained strong in the first quarter of this year. But he noted leading indicators for the second quarter suggest a slowdown.

"Our tight monetary policy will balance demand and encourage savings," Karahan noted. As a result, he said a negative output gap – where the economy is producing less than its long-term capacity – which the bank expects, will be a "significant component of the disinflation process."

The second half of the year is envisaged to bring a weakening in domestic demand due to the delayed effects of monetary tightening, which will back the ongoing improvement in the current account balance, the governor added.