Türkiye’s central bank revises year-end inflation forecast to 28%

Presenting its latest quarterly assessment to financial stakeholders in Istanbul, Türkiye’s Central Bank Governor Fatih Karahan announced on Thursday an upward adjustment to the lender’s year-end 2026 consumer price forecast, now pegged at 28%. This figure represents a two-percentage-point climb from the previous estimate of 26%, driven primarily by international energy market volatility and administered pricing shifts.

Inflation trajectory and policy stance

The updated roadmap laid out by the monetary policy committee now anticipates that annual price growth will descend to 15% by the close of 2027, with a further decline to 9% projected for 2028. These interim milestones are part of a broader strategy aimed at eventually stabilizing around the official medium-term objective of 5%. Karahan clarified that the primary catalysts for the revision included higher assumptions for diesel and natural gas, along with adjustments in the domestic fuel-price mechanism and rising food costs. He also noted that the disinflation path had faced recent headwinds due to supply-chain disturbances linked to geopolitical tensions, though he emphasized that the tightening cycle continues to effectively cool domestic demand.

Reserves and monetary discipline

According to the governor, the impact of restrictive monetary policy is becoming increasingly visible in sectors directly sensitive to borrowing costs, with money-market rates currently operating near the 40% threshold through overnight facilities. To support this trajectory, the Bank has kept its one-week repo rate unchanged at 37% following a 100-basis-point reduction earlier this year. On the external front, Karahan highlighted that Türkiye’s gross reserves have expanded by $30 billion since late March, reaching $185 billion by mid-August, while net reserves excluding swaps posted an even stronger gain of $35 billion to stand at $56 billion.

Downside risks from commodities

Among the chief upside threats to the bank’s baseline scenario are persistently high oil and gas prices, contingent on ongoing conflict dynamics and ceasefire negotiations. Officials also flagged uncertainties tied to international agricultural prices and production costs, factors that could complicate the broader disinflation effort. Despite these pressures, Karahan reiterated that the monetary authority will not hesitate to sustain a tight liquidity stance until the disinflation process is firmly secured across all target horizons.