TCMB revises its 2026 inflation forecast upward
The Central Bank of the Republic of Türkiye (TCMB) has updated its inflation expectations for 2026. According to data shared by TCMB Governor Fatih Karahan in the presentation of the first Inflation Report of the year, the 2026 year-end inflation forecast range has been raised from 13-19 percent to 15-21 percent. The interim target for 2026 has been kept at 16 percent.
The inflation forecast for 2027 was announced as 6-12%, while the interim targets were kept unchanged at 9% for 2027 and 8% for 2028.
Reasons for the revision
President Karahan stated that the revision to the forecast range was driven by the increased visibility of risks, changes in underlying assumptions, and adjustments to the methodology used in calculating the Consumer Price Index (CPI/TÜFE). He noted in particular that the rising weight of the services group within the index exerted an upward impact.
Karahan reported that consumer inflation had declined to 30.7 percent as of January, attributing this development to food prices and annual calendar-based price adjustments during the period. He also highlighted that the stickiness in services inflation has begun to ease, noting early signs of a breakdown in backward-indexing behavior particularly in rent and education categories. Rent inflation is projected to fall into the 30–36 percent range by year-end.
Emphasis on Tight Monetary Policy
The Central Bank of Türkiye (CBRT) reiterated its commitment to maintaining a tight and data-dependent stance in support of the disinflation process. Karahan recalled that the policy rate was set at 38 percent in December and reduced by 100 basis points to 37 percent in January. He emphasized that monetary policy could be tightened again should inflation deviate markedly from the projected path.
Karahan noted that the threshold required to accelerate the pace of interest rate cuts in the near term appears "somewhat high." He underscored that March and April data will be critical in clarifying the inflation outlook.
Global Risks and Domestic Demand Balance
The presentation also addressed developments in the global economy. While signs of recovery are emerging in global growth expectations, trade protectionism and geopolitical developments were identified as posing downside risks.
It was stated that the rebalancing of domestic demand continues under the influence of tight monetary policy, with consumption's contribution to growth declining while the share of investment rises.
Rise in Reserves, Wind-Down of FX-Protected Deposits
As of February 6, gross reserves were reported to have risen to $208 billion, while net reserves excluding swaps reached $78 billion. The balance of FX-Protected Deposits (KKM), which had previously exceeded $140 billion, has now declined to below $0.1 billion, indicating a substantial wind-down of the scheme.
Outlook for Food, Energy, and Oil
Karahan noted that food inflation has recently exhibited heightened volatility, though the trend remains broadly aligned with six-month forecasts. Increases in energy prices and a recovery in external demand were also cited as factors influencing projections.
Karahan stated that a decline in oil prices is expected following the U.S. election cycle, which could contribute to disinflation. It was also noted that coordination with fiscal policy would support efforts to combat inflation.
"Price Stability Is a Prerequisite for Sustainable Growth"
President Karahan stressed that price stability is a fundamental condition for sustainable growth, affirming that all necessary measures will be taken to bring inflation down to levels consistent with intermediate targets.
Additionally, Karahan drew attention to the wealth effect stemming from gold holdings often referred to colloquially as "under-the-mattress savings" amounting to approximately $600 billion. He noted that rising gold prices have generated an estimated wealth effect of around $200 billion, influencing economic behavior.
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