BBVA Research Cuts Turkey’s 2025 Inflation Forecast After Lower-Than-Expected July CPI

After Turkey’s consumer inflation came in below market expectations for July, BBVA Research revised its 2025 year-end inflation forecast from 31% down to 30%, signaling cautious optimism in the country’s ongoing disinflation efforts. The report also predicts the Central Bank of Turkey (CBRT) will begin cutting interest rates later this year—but with a gradual and cautious approach.

Market Surprise: July Inflation Falls Below Forecasts

The latest inflation data released by TurkStat (TÜİK) showed July consumer prices rising only 2.06% month-on-month, significantly below forecasts. The annual inflation rate eased to 33.52%, triggering analysts to re-evaluate their outlooks for the rest of the year.

Responding to the milder-than-expected CPI, BBVA Research updated its macroeconomic analysis, emphasizing that Turkey’s monetary policy stance will remain crucial for long-term price stability.

Rate Cuts Expected—But Not Rushed

According to BBVA Research, the CBRT is likely to begin reducing interest rates in the second half of 2025. However, the report underlined that any rate cuts would be measured and slow-paced.

“The Central Bank’s cautious stance is vital for the success of the disinflation process. The timing and magnitude of rate cuts must align with lasting declines in inflation,” the report stated.

Fiscal Discipline Still a Missing Puzzle Piece

BBVA also warned that monetary policy alone won’t be sufficient to curb inflation. The report, as cited by Ekonomim, pointed to the need for stronger fiscal discipline and coordinated action between fiscal and monetary authorities.

“Inflation expectations remain elevated and not yet strongly anchored. This keeps upside risks in play,” BBVA noted.

Fragile Recovery Ahead

Despite positive signals, BBVA Research cautioned that domestic demand, exchange rate volatility, and global energy prices remain significant risks. The report suggests that a fragile but improving macroeconomic balance is emerging, contingent on disciplined policy execution.