Turkey’s central bank kept its inflation targets unchanged at 16% for 2025 and 9% for 2026, and added an 8% target for 2028. It stated these interim targets will only change under extraordinary circumstances.
The bank raised its 2025 forecast range to 15–21%, with a 19% mid-point, from 13–19% before. For 2026, it set a 6–12% range with a 9% mid-point, while a market survey puts 2026 expectations at 23.23%.
Inflation Forecast Revisions And CPI Changes
The revision was linked to a higher services weight in the CPI basket after methodological changes, adding about 1 percentage point to the annual projection. Oil and energy assumptions fell, with oil at US$60.9 from US$62.4, while an ING forecast is US$56.5.
The bank also lifted TRY-denominated import price assumptions due to higher non-energy commodity prices. It said January food prices pushed annual inflation towards the upper band, and flagged further food pressure in February, linked to Ramadan.
It reported median inflation remained moderate and expected non-food inflation to slow after January. For March and April, it expects underlying inflation to converge with November and December readings.
The Central Bank’s signal to keep cutting interest rates, despite raising its own 2026 inflation forecast to a 19% midpoint, is a significant development for us. This official forecast remains far more optimistic than the market consensus, which sits at 23.23% and is likely to climb. This growing gap between the bank’s view and market reality points towards continued pressure and weakness for the Turkish Lira.
Trading Implications For USDTRY Exposure
Given this clear easing bias in the face of persistent inflation, we should position for a higher USD/TRY exchange rate in the coming weeks. The January inflation data confirmed this pressure, with a 6.8% monthly rise pushing the annual rate to over 71%, making the bank’s policy stance appear increasingly unsustainable. We see value in buying USD/TRY call options or futures to capitalize on expected Lira depreciation from its current level.
The bank’s warning about a further inflation spike in February due to food prices ahead of Ramadan introduces another layer of uncertainty. We saw similar pre-Ramadan price hikes last year in 2025, which suggests this is a predictable, high-impact event. This elevated uncertainty makes buying volatility on the USD/TRY pair an attractive strategy, as it would profit from a significant price move in either direction.
While the official guidance points to rate cuts, the severe negative real interest rates—with the policy rate far below the 71% inflation rate—challenge this path. A potential strategy is to use interest rate swaps to bet that the bank will be unable to cut rates as much as it hopes without triggering a currency crisis. This acts as a hedge against an eventual, forced policy reversal later in the year.
