Inflation forecast for 2026 revised up to 28 percent
The Central Bank of the Republic of Turkey has raised its year-end 2026 inflation forecast by 2 percentage points to 28 percent. Presenting the third Inflation Report, the central bank maintained its tight monetary stance with the policy rate held at 37 percent.
Upper-band funding anchors tight stance
The central bank raised its year-end 2026 inflation forecast to 28 percent, citing higher import prices, diesel margins, and agricultural costs.
Annual inflation stood at 31.8 percent in July, while core inflation in the C index registered below 30 percent.
The policy rate remained at 37 percent following a 100bp cut in January.
To reinforce monetary tightness amid geopolitical shocks, the bank suspended one-week repo auctions and relied on upper-band overnight funding, keeping money market interest rates near 40 percent.
Medium-term projections place inflation at 15 percent by end-2027 and 9 percent by end-2028, before converging to the official 5 percent target.
Credit cools while reserves swell
Macroprudential measures and tight financing conditions cooled domestic demand and restructured balance sheets.
The share of Turkish lira deposits expanded to 62 percent as resident inflows accelerated.
Total loan growth moderated from 34.6 percent at end-February to approximately 25 percent, led by tighter limits on consumer and overdraft lending.
FX loan growth dropped below 10 percent.
Concurrently, foreign reserves strengthened: gross reserves climbed by $30 billion to $185 billion between March and August 2026, while net reserves excluding swaps rose to $56 billion.
Reality catches up with the forecast
The upward revision to 28 percent acknowledges geopolitical reality but tests policy credibility.
Relying on liquidity operations rather than direct benchmark hikes keeps policy unnecessarily opaque.
Disinflation will remain fragile as long as imported cost shocks continue to overpower domestic demand cooling.