Goldman Sachs Raises Turkey Inflation Forecast Amid Lira Weakness

Summary:

Goldman Sachs has revised its Turkey inflation forecast upward, citing renewed weakness in the lira during the second half of the year. The bank now expects year-end inflation to reach 29% and sees the policy rate at 37% by the end of 2025. Market surveys meanwhile suggest September inflation will come in at around 32.5% annually, reflecting persistent price pressures despite base effects.

Goldman Sachs Adjusts Forecasts

Goldman Sachs economists Clemens Grafe and Başak Edizgil released a research note raising the firm’s projections for Turkey’s macroeconomic outlook.

The bank increased its 2024 year-end inflation forecast from 27% to 29%, citing renewed depreciation of the Turkish lira. At the same time, Goldman raised its 2025 year-end policy rate estimate from 35.5% to 37%, suggesting monetary conditions will remain tighter for longer.

The economists left their 2026 inflation forecast unchanged at 20%, signaling an expectation of gradual disinflation but also acknowledging structural risks that could prevent a faster decline.

Lira Losses Drive Upward Revision

The Turkish lira has been under renewed pressure in the second half of 2024. Data show the currency lost 4.2% against the U.S. dollar in the third quarter, undermining earlier gains from the Central Bank of Turkey’s aggressive tightening cycle.

Goldman’s economists argue that this depreciation will feed into import costs and inflation expectations, raising the likelihood that Turkey will end the year with higher-than-previously-expected price growth.

Market Surveys Point to Persistent Inflation

Parallel to Goldman Sachs’ revision, Bloomberg HT’s September inflation survey revealed continued concern among market participants.

• The median monthly inflation forecast for September stands at 2.5%.

• The median annual forecast is 32.5%, a modest decline from August’s 32.95% but still far above official targets.

The survey showed a range of expectations:

• Monthly forecasts: as low as 2.1% and as high as 2.9%.

• Annual forecasts: between 31.95% and 32.5%.

This spread highlights the uncertainty in forecasting inflation amid currency volatility, high energy prices, and geopolitical risks.

Medium-Term Outlook for Inflation

Survey participants also provided projections for 2025 and 2026:

• 2025 year-end inflation is expected to range between 29.5% and 31.5%.

• 2026 year-end inflation is projected at 21%, with estimates ranging from 19.1% to 24%.

The consensus suggests a slow disinflation process, in line with Goldman Sachs’ more cautious outlook.

August Data Underscored Sticky Prices

According to official figures, consumer prices rose 2.04% month-on-month in August, with the annual inflation rate at 32.95%.

While the figure represented a slight cooling from earlier peaks, analysts noted that price pressures remain broad-based, particularly in food, housing, and services. The data reinforced expectations that Turkey’s disinflation path will be bumpy and subject to external shocks.

Policy Implications

Goldman Sachs’ revision underscores the challenges facing the Central Bank of Turkey (TCMB). After sharply tightening policy in 2023–2024 to stabilize the currency and curb inflation, the central bank now faces renewed market skepticism about the sustainability of disinflation.

By raising its policy rate forecast to 37% in 2025, Goldman is effectively signaling that further monetary restraint will be needed to anchor expectations and prevent runaway inflation.

At the same time, the unchanged 2026 forecast of 20% suggests the bank still expects some structural improvements in the medium term, albeit at a slower pace than government officials project.

Broader Economic Context

The revisions come at a politically sensitive time for Ankara. President Recep Tayyip Erdoğan and Finance Minister Mehmet Şimşek have pledged to restore economic credibility through orthodox policy measures, but the pace of progress remains in doubt.

With general elections on the horizon and geopolitical risks intensifying — including regional conflicts and global trade uncertainty — analysts warn that investor confidence could remain fragile.

The lira’s renewed weakness reflects these risks, along with capital outflows tied to higher U.S. interest rates and global risk aversion.

Market Reaction

While Goldman Sachs’ projections are closely watched by investors, the consensus in Turkish financial markets already leans toward caution.

Local economists emphasize that the combination of exchange rate pass-through, wage increases, and energy price pressures will likely prevent inflation from falling rapidly in the near term.

Foreign investors, meanwhile, are expected to remain selective in their exposure to Turkish assets until clearer signs emerge that disinflation is firmly on track.

Source: Bloomberg HT, Goldman Sachs research note