Turkey\u2019s 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.<\/p>\n
The bank raised its 2025 forecast range to 15\u201321%, with a 19% mid-point, from 13\u201319% before. For 2026, it set a 6\u201312% range with a 9% mid-point, while a market survey puts 2026 expectations at 23.23%.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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\u2019s 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.<\/p>\n
The bank\u2019s 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.<\/p>\n
While the official guidance points to rate cuts, the severe negative real interest rates\u2014with the policy rate far below the 71% inflation rate\u2014challenge 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.<\/p>\n
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