A survey by CBT indicates that market participants expect inflation to be around 23.2% by the end of 2026, a slight decrease from 23.4% the previous month. This suggests a minor easing in expectations, corresponding to a current softening of inflation rates, although they seem to stabilize around 23%.
Unreliable Long Term Forecasts
Forecasts for longer-term inflation, such as 24 months ahead, are deemed unreliable, as they tend towards the central bank’s target, which is seldom met. The 23% forecast is viewed as an ‘active’ prediction, reflecting the anticipated terminal rate and suggesting ongoing monthly price increases are not aligning with CBT’s medium-term objectives.
The persistent rise in prices despite high interest rates suggests that while reducing inflation from peaks caused by COVID-related factors was manageable, achieving consistent targets remains challenging. The survey also anticipates a 150 basis point rate cut this month and another in March. Meanwhile, the USD/TRY continues its gradual daily increase, reflecting ongoing market adjustments.
The latest survey shows that market participants expect inflation to be around 23.2% by the end of this year. This is happening even as the most recent data from December 2025 showed year-over-year inflation at a stubborn 29.5%. It appears expectations are anchoring at a level far above the central bank’s goals.
We warned about this problem throughout 2025; bringing inflation down from its peak above 70% was one thing, but the path to single digits is proving much harder. Monthly price increases are still running too hot, undermining the progress made by last year’s aggressive interest rate hikes. This suggests the fight against inflation is far from over.
Market Tensions and Strategies
Despite this, the market is now pricing in a 150 basis point rate cut this month and another significant cut in March. This creates a clear tension between persistent inflation and the central bank’s potential shift towards easing policy. For traders, this divergence is a critical signal for upcoming currency weakness.
As a result, we continue to see the USD/TRY exchange rate grind higher, recently pushing past 35.80. Given the expectation of rate cuts amidst high inflation, traders should consider positioning for further lira depreciation in the coming weeks. Buying USD/TRY call options could be a prudent strategy to capitalize on this expected upward move.
Implied volatility on USD/TRY options will likely remain elevated, reflecting the deep uncertainty in the market. This makes options more expensive but also a valuable tool for managing risk in a potentially volatile environment. Forwards can also be used to lock in a higher future exchange rate.
