IMF Highlights: “Inflation Expected to Continue Its Gradual Decline”
The International Monetary Fund (IMF) has stated that Turkey’s short-term economic growth outlook remains solid and that inflation is expected to continue decreasing gradually. In its evaluation, the IMF emphasized that “prudent economic policies have delivered significant achievements.”
These remarks come from the preliminary findings shared after the IMF staff’s visit to Turkey as part of the Article IV Consultation.
Prudent Policies Are Paying Off
According to the IMF, Turkey’s commitment to lowering inflation while maintaining growth has produced meaningful results. Improvements noted include the gradual decline in inflation, rising confidence in the lira, and strengthening reserves.
The Fund also underlined that, although risks remain high, they have moderated compared to last year. Strong policy management has played a key role. The Central Bank of the Republic of Turkey (CBRT) has kept real interest rates high and used multiple instruments to manage financial risks, while this year’s shrinking budget deficit helped curb inflation.
However, the IMF cautioned that the slow pace of disinflation leaves the economy vulnerable to shocks stemming from investor behavior, global risk appetite, or energy prices. This delay can create tangible economic costs and risks.
Policy Recommendations: Tighter Stance and Structural Reforms
As Turkey moves toward a more stable and sustainable path, the IMF suggests prioritizing income-focused fiscal tightening, a stricter monetary policy, and prudent wage policies. While this policy mix might slow short-term growth, structural reforms—especially those improving labor and product markets, competitiveness, and inclusiveness—could offset these effects and strengthen Turkey’s long-term growth potential. Measures to protect the most vulnerable groups would also support inclusive growth.
“Prudent Economic Policies Have Delivered Significant Achievements”
Key improvements cited by the IMF include:
- A shrinking budget deficit
- Lower inflation
- Positive real interest rates
- Increased trust in the Turkish lira
- Improved growth dynamics
- Better current account performance
- Strengthened reserves
Short-Term Outlook: Solid Growth, Gradual Disinflation
The IMF expects Turkey’s GDP to grow 3.5% this year. In 2026, lower policy rates and a less restrictive fiscal stance are anticipated to support demand, leading to stronger investment and consumption and pushing growth to 3.7%.
On inflation, the IMF projects 33% by the end of 2025, noting that more moderate wage increases and declining inflation inertia will help drive inflation down gradually.
However, it stresses that additional policy efforts are needed to align inflation with CBRT targets and build resilience against shocks. Continuing fiscal consolidation through revenue-boosting measures and spending restraint is seen as essential.
Central Bank Framework and Exchange Rate Policy
The IMF acknowledges the CBRT’s achievements but highlights that the current environment is challenging. Using multiple tools can complicate communication and affect expectations.
It also notes that achieving inflation goals will require higher real interest rates supported by a framework strongly centered on policy rates. Exchange rate policy should focus on smoothing excessive volatility that could disrupt inflation expectations.
Financial Sector: Healthy but Still Requires Vigilance
Turkey’s financial sector remains healthy, and authorities have demonstrated their ability to act swiftly in moments of market stress. Although overall risks have decreased, the IMF advises close monitoring of foreign exchange liquidity risks and recommends continued strengthening of the supervisory framework.
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