Turkey’s Inflation Expectations Ease as Growth Outlook Strengthens, TCMB Survey Shows

The Central Bank of the Republic of Türkiye (CBRT/TCMB) has released the results of its December 2025 Market Participants Survey, offering a detailed snapshot of how the real and financial sectors perceive inflation, exchange rates, interest rates, and growth. The survey, conducted with the participation of 65 representatives from across the economy, points to a notable improvement in inflation expectations alongside a more optimistic growth outlook, even as medium-term exchange rate expectations edge higher.

Overall, the findings suggest that confidence in the disinflation process is gradually strengthening, while expectations for economic activity in both 2025 and 2026 have been revised upward.

Inflation Expectations Continue to Decline

One of the most closely watched components of the TCMB Market Participants Survey is inflation expectations, and the December results indicate further easing across all horizons. Participants’ year-end consumer price inflation (CPI) expectation for the current year declined meaningfully compared with the previous survey period.

According to the results, the end-2025 CPI expectation fell from 32.20% to 31.17%, signaling growing confidence that inflationary pressures are moderating. This decline aligns with the broader disinflation narrative emphasized by monetary authorities in recent months.

Medium-term expectations also improved. The 12-month-ahead CPI forecast edged down from 23.49% to 23.35%, while the 24-month-ahead inflation expectation decreased from 17.69% to 17.45%. These gradual revisions suggest that market participants increasingly expect inflation to continue decelerating over the next two years.

It is worth noting that these expectations are being formed against the backdrop of the TCMB’s latest official guidance. In its final Inflation Report of the year, the central bank maintained its interim inflation target of 24% for 2025. However, it revised its year-end inflation forecast range upward, from 25–29% to 31–33%, reflecting lingering uncertainties and structural price pressures. Despite this upward revision to the official forecast band, survey participants appear to be more cautiously optimistic.

Exchange Rate Expectations Show a Mixed Picture

Expectations for the Turkish lira against the US dollar present a more nuanced outlook. While short-term expectations improved slightly, longer-term projections rose, reflecting ongoing uncertainties about global financial conditions and domestic macroeconomic dynamics.

Survey participants lowered their end-of-year USD/TRY forecast from 43.42 to 43.06, indicating a modest improvement in near-term currency expectations. This adjustment suggests that tighter monetary conditions and improving inflation dynamics are perceived as supportive for short-term exchange rate stability.

However, the outlook changes when looking further ahead. The 12-month-ahead USD/TRY expectation rose from 50.62 to 51.08, signaling that market participants continue to price in depreciation pressures over the medium term. This divergence between short-term and longer-term expectations underscores persistent structural challenges, including external financing needs and sensitivity to global risk sentiment.

Interest Rate Expectations Reflect Ongoing Monetary Tightness

Interest rate expectations in the survey point to a gradual easing in short-term funding costs, consistent with recent monetary policy signals. Participants revised downward their expectations for the overnight interest rate in the BIST Repo and Reverse Repo Markets.

The expected overnight rate for the current month declined from 39.35% in the previous survey to 38.13% in the December edition. This downward revision suggests that market participants anticipate slightly looser liquidity conditions toward year-end.

At the same time, expectations for the TCMB’s policy rate at the December Monetary Policy Committee (MPC) meeting converged around 38.21%. This figure reflects broad alignment with the central bank’s recent decisions and communication, reinforcing the perception that policy normalization will proceed in a cautious and controlled manner rather than through aggressive shifts.

Growth Expectations Revised Upward for 2025 and 2026

Beyond inflation and financial variables, the survey also provides valuable insight into expectations for economic growth. In this area, sentiment improved across both forecast horizons.

Participants raised their gross domestic product (GDP) growth expectation for 2025 from 3.4% to 3.5%, indicating increased confidence in the resilience of domestic demand and investment activity. This upward revision suggests that tighter financial conditions have not significantly undermined growth prospects, at least in the baseline scenario.

Similarly, the GDP growth forecast for 2026 was revised higher, from 3.8% to 3.9%. This adjustment points to expectations of a more balanced growth trajectory over the medium term, supported by declining inflation, relative financial stability, and gradual normalization of economic conditions.

What the Survey Signals for Policy and Markets

Taken together, the December 2025 TCMB Market Participants Survey paints a picture of cautious optimism. Inflation expectations are trending downward, growth forecasts are improving, and short-term exchange rate expectations have stabilized. However, the rise in medium-term currency expectations highlights that confidence remains conditional and sensitive to both domestic policy credibility and global developments.

For policymakers, the results reinforce the importance of maintaining a disciplined monetary stance to anchor expectations further. For investors and businesses, the survey suggests a slowly improving macroeconomic environment, albeit one still shaped by structural risks and external uncertainties.