CBRT Raises 2025 Inflation Forecast, Maintains Long-Term Targets: What the 2026 Outlook Signals

Summary:

Turkey’s Central Bank (CBRT) raised its 2025 inflation forecast significantly in its latest Inflation Report, signaling a more cautious stance on disinflation. The Bank kept medium-term “intermediate targets” intact for 2026 and 2027, affirming that the tightening cycle will continue in a data-dependent manner. Economists say the message is clear: inflation may take longer to tame, but the policy discipline remains intact.

Central Bank Lifts 2025 Projection to 31–33% From 25–29%

The Central Bank of the Republic of Turkey (CBRT) revised its inflation expectations upward during the final Inflation Report presentation of the year, held at the Istanbul Finance Center.

Main changes include:

• 2025 inflation forecast: raised from 25–29% to 31–33%

• The midpoint jumps from 27% → 32%

• 2026 and 2027 intermediate targets remain unchanged:

  • 2026: 16%

  • 2027: 9%

CBRT emphasized that these “intermediate targets” will serve as anchors until price stability is conclusively achieved. Governor Fatih Karahan reiterated that these targets will not be altered unless an extraordinary macroeconomic shock occurs.

The Bank also stated that the output gap will remain negative until end-2028, implying demand conditions will continue supporting disinflation.

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Why the Revision? Inflation Proved Stickier Than Expected

According to analysts attending the briefing, the upward revision reflects stubborn inflation dynamics, mainly in food, housing, and education prices.

Kuveyt Türk Yatırım summarized the situation as follows:

“Food inflation slowed far less than expected and continues to pressure the disinflation path. Persistent monthly increases of around 3.5% in rent and education also played a major role.”

The institution maintains its own 2025 year-end forecast at 31.8%.

Interest Rate Policy Will Remain Data-Driven and Meeting-by-Meeting

Karahan underlined that monetary policy decisions will continue to follow a meeting-based and caution-focused approach:

“Policy steps and their magnitude will be shaped by the inflation outlook and data flow.”

This reflects a continuation of CBRT’s restrictive policy stance, with no signal of rapid easing.

Marbaş: 2026–2027 Strategy Is ‘Watch and See’

Research analysts from Marbaş Securities, who attended the briefing, interpreted the new forecast as the Central Bank aligning itself with market expectations:

• 2025 forecast is now consistent with private-sector models.

• For 2026–2027, the Bank is in “watch-and-see mode,” hinting a possible revision once real data from early 2026 becomes available.

• Changes in indexing methodology could influence inflation dynamics — and may trigger forecast adjustments in February.

Marbaş highlighted that credit policy tightening will likely continue, calling it negative in the short term for banks:

“Tighter loan conditions may pressure the sector in the short run, but higher yields support profitability and margins in the medium term.”

Tacirler: Domestic Demand Is Cooling, Output Gap Turns Negative

Tacirler Investment emphasized the breakdown of CBRT’s assumptions behind the revision:

• Oil price assumptions were revised down due to weaker global growth.

• Import price assumptions (especially metals) were revised up, increasing cost inflation.

• Food inflation assumptions were revised upward due to adverse weather patterns.

Most strikingly, Tacirler noted:

“Domestic demand is losing momentum and the output gap has turned negative.”

Their forecasts:

• 2025 year-end CPI: 31.5%

• 2026 year-end CPI: 23%

• Expected rate-cut cycle: possible signal at the December Monetary Policy Committee meeting
  → base case: 100 basis points, year-end policy rate 38.5%

Sign of Policy Discipline: Forecasts Are No Longer Over-Optimistic

In previous years, CBRT faced criticism for overly optimistic projections.
This latest report marks a shift:

• Forecasts now align with market pricing.

• The Bank acknowledges inflation stickiness instead of smoothing it over.

• Communication is more transparent and quantitatively grounded.

Put simply:

CBRT is prioritizing credibility over messaging.

What This Means Going Into 2026

Key takeaways from the report:

Analysts agree that Turkey is entering a longer and slower disinflation cycle, but with a more credible roadmap.

Conclusion: A More Realistic, Credible Roadmap

The Central Bank’s latest inflation report shows a significant shift:

• Forecasts are now aligned with market expectations.

• Policy remains restrictive and focused on price stability.

• The Bank is preparing markets for a multi-year disinflation journey, not a quick fix.

The message to investors is clear:

The program is working — but patience will be required.

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