Central Bank Updates 2026 Year-End Inflation Forecast

Turkey’s Central Bank Announces Year-End Inflation Forecast

The Central Bank of Turkey (CBRT) has released its first Inflation Report of the year, with President Fatih Karahan presenting the outlook for 2026. The intermediate target remains at 16%, while the year-end inflation forecast range has been revised upward from 13–19% to 15–21%. Looking ahead, inflation is expected to decline to 6–12% by the end of 2027.

For 2026 and 2027, intermediate targets remain at 16% and 9% respectively, while the 2028 target has been set at 8%.

Key Insights from President Karahan’s Presentation

Karahan emphasized the progress made in stabilizing prices last year and noted that the tight monetary policy continues to have positive effects on inflation. All policy instruments will remain actively in use to sustain this trend.

Some service items, like rents, which have been resistant to change for a long time, are now showing signs of easing. This shift is seen as a key element for the continuation of the disinflation process.

Demand Composition and Economic Activity

Thanks to tight monetary policy, demand composition is gradually balancing. Industrial production remained flat in the last quarter, while the service sector continued its horizontal trend that started in the second quarter. Headline unemployment declined in the fourth quarter, reflecting these developments.

The current account deficit is expected to rise slightly in 2026 but remain moderate. Output gap indicators are still negative despite a slight upward shift compared to the previous report.

Inflation Drivers: Food and Rent

Consumer inflation dropped by 2.2 points in January compared to the previous reporting period, reaching 30.7%. Food inflation continues to be volatile. Vegetables, which fell sharply in November due to unusually warm weather, surged again in January after adverse conditions.

Food prices are expected to continue affecting inflation into February. Rent inflation shows a downward trend, with year-end forecasts ranging from 30–36% under various scenarios. Adjustments in education prices now reflect the past 12 months’ inflation rather than 24, which is considered an important change.

Commitment to Tight Monetary Policy

Karahan reaffirmed the Central Bank’s commitment to a cautious, tight monetary policy until price stability is fully achieved. Maintaining operational flexibility in Turkish lira liquidity management remains crucial, and the CBRT will continue supporting the API portfolio with gradual purchases throughout the year.

Policy rate adjustments have significantly affected deposit and loan pricing. Additional steps have been taken to align credit growth with the disinflation process and strengthen monetary transmission. TL deposit share remains around 59%, close to historical averages.

Inflation Forecasts

Inflation in 2026 is expected to be between 15% and 21%, while by the end of 2027 it should fall to 6–12%. Intermediate targets remain at 16% for 2026, 9% for 2027, and 8% for 2028. The Central Bank will maintain its cautious, tight policy stance to reinforce the disinflation process through demand, exchange rate, and expectations channels.

Karahan stressed that price stability is a prerequisite for sustainable growth and societal welfare, and the Bank remains determined to do whatever is necessary to bring inflation in line with its targets.

Looking Ahead

Despite technical adjustments, services inflation — particularly in rent — is expected to ease. Last year, headline inflation showed a declining trend in January, reflecting improved supply-demand balance and pricing behavior. Rent inflation is projected to decline to around 30% by year-end, while education adjustments are expected to smooth inflation dynamics.

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