The Turkish central bank (CBT) has adjusted its year-end inflation forecast for 2025, once again, upward to 31%-33%, compared with the previous 25%-29%. This revision aligns with existing analyst consensus forecasts. As always, the projections for future years remain unchanged (e.g. 2026: 13%-19%), Commerzbank's FX analyst Tatha Ghose notes.

Political fragility and market volatility complicate things

"Governor Fatih Karahan attributed the upward revision for 2025 to several factors, including pressure on food prices due to drought, the influence of capital flows, geopolitical tensions, constrained improvements in inflation expectations and stickiness of service prices. Despite recent inflation figures exceeding projections, primarily due to food-related price effects, the governor asserted that the broader disinflationary trend was expected to persist. We are skeptical of this claim."

"FinMin Mehmet Simsek independently noted that headline CPI inflation had eased markedly, with the annual rate in October receding to 32.9%. The ministry foresees the disinflation trend continuing, anchored by restrictive monetary settings, a supportive but disciplined fiscal stance, prudent pricing of administered tariffs and supply-side actions. We absolutely dismiss the idea that 'inflation is moderating' based on year-on-year rates of change coming down from sky-high levels. There is no pathway from current fresh month-on-month price increases to the inflation target; at this stage, repeating the claim that inflation has moderated is somewhat disingenuous."

"Despite assurances, concerns persist regarding inflation moderating sustainably. CBT’s revision of projections very much follows the historical pattern where the near-term forecast is revised up when the time frame draws close, and it has to be re-calibrated to reality. But future forecasts are maintained at unrealistic levels. Of course, political fragility and market volatility are complicating the central bank's job. Still, continued premature monetary easing against the backdrop of rising inflation risk reduces the relative attractiveness of the TRY carry, as it reduces the attractiveness of TRY deposits versus FX deposits."