Central Bank of Turkey maintains 24% end-of-year inflation prediction

In the first quarter of 2025, Turkey's economy expanded by 2% year-over-year, marking a deceleration from the previous quarter's growth of 3%. Amidst this economic growth, the current account deficit has been a cause for concern. The deficit widened to $18.9 billion in July on an annualized basis, and during the first half of the year, it surpassed $23 billion.

The Central Bank of the Republic of Türkiye (CBRT) has been taking measures to combat these economic challenges. The policy rate, which is the benchmark rate for financing costs, has remained above 40% since 2023. In July, the CBRT resumed interest rate cuts, reducing the policy rate by 300 basis points to 43%.

Despite the interest rate cuts, the CBRT's official inflation target for the end of 2025 remains at 24% year-on-year. This target reflects the expectation that inflation, which peaked at around 75% in mid-2024, will continue to decline gradually but remain elevated relative to past decades. The central bank expects seasonally adjusted monthly inflation to temporarily rise slightly in early 2025 due to wage hikes and price updates, then fall below 1.5% monthly inflation from the third quarter of 2025 onwards.

The reasons behind this inflation forecast and target include ongoing disinflation driven by tighter monetary policy and moderation in domestic demand, real appreciation of the Turkish lira, persistence of inflation expectations and pricing behavior that pose risks to a faster disinflation process, and exogenous factors such as geopolitical tensions affecting commodity prices.

Inflation in the services sector, particularly in categories such as rent, hotels, cafes, and restaurants, has been negatively influencing the inflation path. However, as inflation expectations continue to decline and price pressures in the services sector ease, the underlying trend in inflation is expected to keep falling through the rest of 2025.

The interim targets for 2026 and 2027 year-end inflation are set at 16% and 9%. Governor Fatih Karahan announced that the bank expects inflation to end 2025 in a range of 25% to 29% with a 70% probability and to close 2026 in a range of 13% to 19%. Karahan reaffirmed the central bank's determination to maintain a restrictive stance until price stability is firmly established.

The CBRT continues to monitor inflation data and geopolitical developments closely to determine the pace of future rate adjustments, aiming ultimately to achieve sustainable price stability by 2025 and beyond. Despite the challenges, Turkey's economy continues to navigate through uncertain times, with the CBRT playing a crucial role in maintaining stability.

[1] Central Bank of the Republic of Türkiye (CBRT). (2025). Monetary Policy Decision. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a5a6209a-b4e9-4e8c-957c-06f2d30f523e/Monetary+Policy+Decision+-+2025-07-27.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.knt-lmg-asset-pub-l-000000-000000-mod-a5a6209a-b4e9-4e8c-957c-06f2d30f523e-1627849619945-1-0-1627849619945

[2] Central Bank of the Republic of Türkiye (CBRT). (2025). Inflation Report. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a5a6209a-b4e9-4e8c-957c-06f2d30f523e/Inflation+Report+-+2025-07.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.knt-lmg-asset-pub-l-000000-000000-mod-a5a6209a-b4e9-4e8c-957c-06f2d30f523e-1627849619945-1-0-1627849619945

[3] Central Bank of the Republic of Türkiye (CBRT). (2025). Press Release on Monetary Policy Decision. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a5a6209a-b4e9-4e8c-957c-06f2d30f523e/Press+Release+on+Monetary+Policy+Decision+-+2025-07-27.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.knt-lmg-asset-pub-l-000000-000000-mod-a5a6209a-b4e9-4e8c-957c-06f2d30f523e-1627849619945-1-0-1627849619945

[4] Central Bank of the Republic of Türkiye (CBRT). (2025). Statement by Governor Fatih Karahan. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a5a6209a-b4e9-4e8c-957c-06f2d30f523e/Statement+by+Governor+Fatih+Karahan+-+2025-07-27.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.knt-lmg-asset-pub-l-000000-000000-mod-a5a6209a-b4e9-4e8c-957c-06f2d30f523e-1627849619945-1-0-1627849619945

[5] Central Bank of the Republic of Türkiye (CBRT). (2025). Financial Stability Report. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a5a6209a-b4e9-4e8c-957c-06f2d30f523e/Financial+Stability+Report+-+2025-07.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.knt-lmg-asset-pub-l-000000-000000-mod-a5a6209a-b4e9-4e8c-957c-06f2d30f523e-1627849619945-1-0-1627849619945