ING’s Chief Economist for Turkey, Muhammet Mercan, notes that the Central Bank of Turkey raised its 2026 inflation forecast range while keeping its official targets unchanged, and remains relatively constructive on the inflation outlook. This stance, alongside updated CPI assumptions and a still-optimistic food inflation path, points to continued but cautious policy rate cuts in the coming months.

CBT balances higher forecasts with easing bias

"Compared to the previous report, the bank has kept inflation targets unchanged for this year and next at 16% and 9%, respectively, and has introduced an 8% target for 2028. The Governor emphasised that these interim targets represent specific inflation levels that the CBT is committed to achieving in the short term as part of its broader disinflation strategy, and that they will not be adjusted unless extraordinary circumstances arise."

"On the other hand, the CBT hiked the forecast range for this year to 15-21% (with a mid-point of 19%) from 13-19% previously. For next year, the forecast range was 6-12% (9% mid-point). The forecasts are now closer to – but still more optimistic than – those of market participants, whose latest survey puts 2026 inflation expectations at 23.23%. This figure is likely to rise further in the February survey following the January inflation print."

"According to the report, the key factor behind this adjustment was the increase in the weight of the services group within the consumer price index basket, following recent methodological changes to the CPI calculation. The CBT estimated approximately 1ppt to the annual inflation projection. In addition, despite lower assumptions for oil and energy prices (oil down to US$60.9 from US$62.4 vs ING forecast of US$56.5), the upward revision to TRY‑denominated import price assumptions driven by rising non‑energy commodity prices has contributed to higher inflation estimates."

"While reiterating the impact of food in January CPI, pushing the annual figure towards the upper band of the forecast range in the previous report, the governor has again warned of further pressure in February CPI due to rising food prices, likely due to the upcoming Ramadan effect. However, he pointed out that median inflation, one of the key underlying inflation indicators, continues its moderate course and a further gradual slowdown in non-food inflation after January data."

"Beyond February, Governor Karahan sees underlying inflation in March and April converging to levels realised in November and December, implying an improvement despite growing concerns in the market for the 2026 inflation outlook."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)