Turkey's annual inflation rate dropped to 71.6% in June, undergoing disinflation for the first time in months, official data showed on Wednesday.

"The disinflation process has begun," Finance Minister Mehmet Simsek said on X.

Dezenflasyon süreci başladı.

Mevsimsel düzeltilmiş üç aylık hareketli ortalamanın yıllıklandırılmış değerinin ima ettiği enflasyon eğilimi yıl sonu hedefimizle uyumludur. Yüzde 1,64’lük aylık haziran verisi ise yüzde 22’lik yıllıklandırılmış enflasyonu işaret ediyor.

Finansal…

— Mehmet Simsek (@memetsimsek) July 3, 2024

The process began in May after consumer prices reached a peak of 75.5%.

"We will all see the fever of inflation decrease in the coming months," Turkish President Recep Tayyip Erdogan said earlier this week, who attempted to combat inflation by withdrawing his opposition to interest-rate hikes.

In June 2023, the Central Bank gradually started increasing its key rate from 8.5% to 50% due to the rapid spike in consumer prices and the collapse of the Turkish lira.

Capital Economics economist William Jackson said the unexpected decline in the Turkish inflation rate was the beginning of a new phase in the disinflation process, predicting that the rate will undergo steeper falls in July and August.

"Still, it's likely to be a bumpy path down, with inflation unlikely to drop below 40 percent until 2025," he said.

Turkish Central Bank holds key rate at 50% amid lira's record weakness

The Turkish Central Bank opted to maintain its key interest rate at 50% for the third consecutive time, citing concerns over the weakening national currency.

Last week, the lira hit a new all-time low of 33.06 against the US dollar, with the rate on June 27 slightly improving to 32.86 liras per dollar.

"The Monetary Policy Committee has decided to keep the policy rate (the one-week repo auction rate) constant at 50 percent," the bank said in a statement.

The decision to maintain the key interest rate at 50% is said to be in line with expectations among economists and market participants.

The bank stated it would continue adjusting its policies in response to the impacts of monetary tightening, aiming to achieve the 5% inflation target.

Since the start of 2023, the Turkish lira experienced monthly depreciation, except for a respite in August. June 2023 also witnessed a substantial decline of nearly 25%, as the lira fell from 20.8 liras to 26 liras per dollar. The following month saw the exchange rate surpassing 27 liras.

In December 2023, Turkey faced a considerable inflationary surge as it reached approximately 65%, sparking worries over economic stability. Meanwhile, the inflation research group ENAG suggested a figure exceeding 127%.

Annual inflation rose to 69.8% in April from 68.5% in March, as reported by the Turkish Statistical Institute. ENAG estimated inflation even higher, at 124.35%.

In February, the head of the Turkish Central Bank (CBRT) Fatih Karahan declared that his primary goal is to ensure the effective control of inflation.

He also pledged to keep borrowing costs elevated until inflation reaches levels aligned with the bank's specified target.

Finance Minister Mehmet Simsek projected a decline in consumer price growth to 34% by the end of the current year. 

He also expressed the government's goal to achieve price stability and reduce inflation to single digits by 2026.