Inflation Targets vs. Reality: Deviation Gap Under the New Policy

The shift in economic strategy initiated in June 2023 has faced a severe reality check as the gap between official inflation targets and market realizations has reached historic levels. When the first Medium-Term Program (OVP) was announced in September 2023, Minister of Treasury and Finance Mehmet Şimşek pledged to bring inflation down to a single-digit 8.5pct by 2026. However, current projections for 2026—even by optimistic standards—hover around 29pct, representing a staggering 350pct deviation from the initial goal.

The High-Interest Rate Paradox

To achieve these ambitious targets, the Central Bank aggressively hiked the policy rate from 8.5 to 50 and maintained it within the 40-50 band for nearly two years. While this high-interest environment successfully cooled investment, production, and exports, it has failed to break the back of persistent inflation.

The data suggests that the further the program progresses, the wider the gap becomes. In 2024, inflation was nearly 1.3 times the target; by 2026, it is expected to be more than 3 times the original forecast.

The Impact of Exchange Rate Liberalization

A pivotal moment in this inflationary journey occurred in May 2024, when inflation peaked at 75.45. Analysts point to Minister of Treasury and Finance Mehmet Şimşek’s decision to “release” the exchange rate as a primary driver of this spike.

Shortly after the OVP’s publication in September 2023, Şimşek noted that the exchange rate had been held at a specific level from December 2021 until May 2023. By shifting toward what he termed “rational policies,” the administration stopped active currency interventions. However, the resulting currency pass-through had a more violent impact on consumer prices than the ministry had calculated, leading to a “world record” level of deviation in economic forecasting.

Rising Costs for Producers and Consumers

While the policy in place (insistence) continues, the bill is being paid by the real sector. High interest rates have made access to capital nearly impossible for tradesmen, farmers, and small businesses, while the cost of living remains out of control.

Critics argue that the current deviation is not merely a technical error but a systemic failure of the “rationality” transition, as the inflation target and the actual price index have moved in opposite directions. As we move deeper into 2026, the 8.5pct target appears more as a relic of 2023 optimism than a reflection of the current economic trajectory.