Central Bank Raises Inflation Forecast as Food and Energy Risks Take Center Stage

The Central Bank of the Republic of Turkey (CBRT) surprised markets by revising its year-end inflation forecast for 2026 from 26% to 28%. The pressure from rising energy, import, and food prices lies behind this decision, while banks and brokerage houses emphasize that this revision results from supply-side shocks and that the slowdown in domestic demand continues to support the disinflation process. Geopolitical developments and volatility in energy prices are highlighted as primary risks for the upcoming period.

Dynamics of the Revision: Supply Shocks and Demand Slowdown

Data derived from the Matriks News survey and the CBRT Inflation Report indicate that the deterioration in the inflation outlook may not be temporary. Institutions summarize the main reasons for the revision under the following headings:

■The CBRT raised its food inflation assumption from 26.3% to 28.5% and the import price increase assumption from 6.3% to 6.9%.

■Diesel refinery margins, natural gas prices, and administered-directed price adjustments are cited as main factors pushing forecasts higher.

■Thanks to tight monetary policy, the slowdown in retail sales and credit growth shows that demand conditions remain in the disinflationary zone.

Institution Expectations More Hawkish Than the Central Bank

Market players hold expectations even higher than the CBRT's new 28% forecast, deeming it insufficient. In surveys conducted, the year-end CPI expectations of 7 institutions ranged between 28% and 30%, with an average expectation of 29.33% and a median expectation of 29.5%. This situation concretizes the market's concerns regarding continuing upside risks. The preservation of the intermediate target of 24% for 2026 suggests that the medium-term anchor has not yet broken, though short-term deviations are occurring.

Discussions on Monetary Policy Normalization

Changes in the CBRT's funding composition are drawing more attention than cuts in the policy rate. Nine of the 11 institution reports evaluated the return to one-week repo auctions and the funding cost approaching the policy rate of 37%. Year-end policy rate expectations are tightly clustered between 35% and 37%. Analysts state that additional monetary tightening is not seen as necessary, but normalization steps could come through the funding channel depending on conditions.

From a consumer perspective, we must fully grasp what these data imply. The Central Bank revising its forecasts upward means the inflation beast is still at the door. Banks, however, will continue to use this data to their advantage against consumers regarding credit interest rates and credit card limits. While inflation rises to 28%, the reduction of consumer loan interest rates and the lowering of file charges to reasonable levels remain at the mercy of banks' conscience. As consumers watch their borrowing costs erode under these shocks, banks will delay interest rate cuts to maintain their profit targets.