ANKARA: Turkey’s central bank is expected this week to upgrade its 2026 inflation forecast and possibly delay or halt interest rate cuts in the coming months, but analysts say this will be another hurdle in the easing cycle after prices soared again in January. Some state officials and analysts have argued that the central bank could either delay the rate cuts that began more than a year ago or accept slower inflation.
Most people expect a little bit of both. That would set the stage for what could be the latest setback in more than two-and-a-half years of efforts to rein in inflation and repair years of policy failures that have caused a protracted cost-of-living crisis. Vice President Cevdet Yilmaz said on Saturday that Turkey’s tight and disciplined monetary and fiscal policies are essential but “not sufficient,” adding that supply-side policies could also help curb annual inflation, which had soared to 75% before falling to around 30% last month.
Higher forecasts and possible targets The first test will be the release of the central bank’s quarterly inflation report on Thursday, with analysts expecting Governor Fatih Callaghan to raise his year-end forecast for the year from a range of 13% to 19% to 23%, the median forecast in a Jan. 28 Reuters poll.
Mr. Callahan could even raise the central bank’s interim target by the end of 2026 from 16%, but analysts say that move is far from certain as he expects the target to remain largely fixed to guide policy expectations.
Consumer price inflation rose nearly 5% month-on-month last month, more than expected, driven by food, beverage and New Year’s price adjustments.
It is expected to fall to 3% this month, but the higher monthly number threatens to derail the full-year forecast, pushing President Tayyip Erdogan and other officials’ pledges that “single-digit” annual inflation is imminent.
“These numbers once again highlight the difficulty of implementing disinflation in Turkey, given the cumulative costs of past policy choices,” said Hilmi Yavas, an independent economic strategist based in Istanbul.
“Central banks should revise their forecasts to stay on top of reality.”
Banks may further delay or suspend interest rate cuts
Monetary policy easing has zigzagged since the central bank first lowered its key policy interest rate from 50% at the end of 2024. Nearly a year ago, it briefly reversed course due to political turmoil, and since then it has cut rates by 300 basis points, then 250, 100, and 150 basis points, and last month it cut rates again by 100 points to 37%.
Already slowing its pace of easing, the central bank last month warned of risks to a disinflationary process and said it would tighten policy if the “inflation outlook deviates significantly from its interim target.” Some analysts predict that to avoid this deviation, the central bank may need to pause rate cuts at the same time as its next rate decision, perhaps in March.
Wall Street bank JPMorgan raised its year-end CPI forecast to 24% from 23%, predicting a series of 100-point cuts this year, with possible modest easing in March due to restaurant and food price pressures during the Muslim holy month of Ramadan. (Reporting by Nevzat Devranoğlu and Jonathan Spicer; Editing by Emelia Sithole-Matarise)
