Turkish Central Bank lifts 2026 inflation forecast to 26%

Turkey’s Central Bank has revised its year-end inflation forecast for 2026 upward to 26%, attributing the increase to war-related spikes in energy prices, transportation costs, and heightened global uncertainty. Governor Fatih Karahan presented the bank’s second Inflation Report of the year at a press conference in Istanbul, stating that inflation is projected to fall to 15% by end-2027 and 9% by end-2028 before stabilising at the medium-term target of 5%.

Geopolitical shocks and monetary response

Karahan noted that “extraordinary geopolitical developments” — specifically the US-Israel-Iran war that began in late February — forced major revisions to the bank’s assumptions. “The closure of the Strait of Hormuz poses a risk to global energy supply,” he said, adding that leading indicators point to slower global activity, higher input costs, and supply chain disruptions. Annual consumer inflation stood at 32.4% in April, while energy inflation surged 19 percentage points over the past two months to 47%, mainly due to oil and natural gas prices. Inflation expectations remain above the bank’s forecasts, with second-round effects posing key risks.

Policy stance and reserve build-up

The bank cut its policy rate by 100 basis points to 37% in January but held steady in March and April amid rising uncertainty. One-week repo auctions were suspended from March 1, pushing the reference money market rate to 40%. Karahan said monetary policy will remain tighter for longer than previously signalled. Gross reserves rose to 172 billion as of May 8 from 155 billion on March 27, while net reserves excluding swaps increased by 20 billion to 39 billion. Oil prices staying higher for longer are a key upside risk, while any easing of the war could support disinflation.