CBRT Maintains Inflation Forecasts, Signals Potential Rate Cuts in H2 2025

At the presentation of the “Inflation Report 2025-II” today, Central Bank of the Republic of Türkiye (CBRT) Governor Dr. Fatih Karahan emphasized the bank’s commitment to maintaining a tight monetary policy and ensuring a disinflationary path, despite global uncertainties.

Inflation Path Remains Unchanged

Karahan began by stressing that the positive outcomes of Türkiye’s tight monetary stance are gradually materializing, and reiterated the bank’s determination to stay the course. Despite external risks, inflation in recent months has come in below the CBRT’s forecast range, while domestic demand is expected to align more closely with disinflation goals in the second quarter.

Key Inflation Forecasts (Unchanged):

• 2025 Year-End CPI Forecast: Midpoint at 24%, within a range of 19% to 29%

• 2026 Forecast: Midpoint at 12%, within a range of 6% to 18%

Karahan justified keeping projections unchanged by citing the positive effects of recent policy actions, noting that the Central Bank has prevented significant deterioration in inflation dynamics. He also said that while inflation expectations are not deteriorating, the recent gains in expectations have stalled.

Market Implications: Analysts Expect July Rate Cut

Our analysis indicates that the CBRT’s forecast is more optimistic than market expectations, which hover around 32.5% CPI for 2025. The sustainability of CBRT’s stance will depend on external risks (geopolitical tensions, global bond yields, Fed policy) and domestic dynamics such as reserve accumulation, current account developments, and fiscal discipline.

Forward Guidance Summary:

• June rate decision likely to be a hold

• Gradual rate cuts may begin in July, barring new inflationary risks

• Year-end policy rate forecast: 35%

CBRT also appears to be preparing for normalization of the interest rate corridor, possibly adjusting the spread to 150 basis points over time.

Karahan: “We’re Ready to Tighten Further if Needed”

Karahan reiterated that the bank remains ready to tighten further if there is a deterioration in inflation outlook, noting that core indicators currently imply inflation in the 30–31% range, but these levels are expected to drop in line with CBRT projections.

Responding to questions on whether the current monetary stance is tight enough, Karahan stated:

“There is no single indicator that defines whether the policy is tight enough. What matters is whether inflation outcomes and expectations are aligning with our forecast path.”

Deputy Governors Signal Flexibility and Continued Reserve Accumulation

During the Q&A session:

• Deputy Governor Osman Cevdet Akçay said the CBRT retains the option to ease policy, and that data-dependency will guide decisions.

• Deputy Governor Hatice Karahan emphasized that reserves will continue to be built up, in line with international norms and as market conditions allow.

Optimism Tempered by Global and Domestic Uncertainty

While CBRT remains confident that its policy stance will guide inflation down toward the 24% target in 2025, market analysts remain cautious, pointing to potential upside risks, global volatility, and domestic fiscal pressures. Barring external shocks, July could mark the start of a cautious easing cycle.

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