Central Bank Raises Year-End Inflation Forecast to 28%

Central Bank of the Republic of Turkey (TCMB) Governor Fatih Karahan, during the presentation of the "Inflation Report 2026-III", raised the year-end inflation forecast to 28% from 26%, signaling clearly that the disinflation process may extend beyond projections due to geopolitical risks and supply shocks. Karahan stated that they expect inflation to decline to 15% by the end of 2027 and 9% by the end of 2028, predicting stabilization at the medium-term target of 5%.

Geopolitical Uncertainty and Pressure on Energy Prices

Global and local risks forming the basis of the report emerged as the primary factors limiting the improvement in the core trend of inflation. The highlights from Karahan's presentation include:

■Although geopolitical risks saw a temporary decline following the agreement between the US and Iran in June, the course of the war and possibilities of new agreements keep uncertainty alive.

■Volatile energy prices continue to impact global inflation and expectations; these effects are expected to spill over into August as well.

■Despite improvements in food production, the negative divergence in food inflation has become pronounced due to international agricultural commodity prices and climatic conditions.

■While tight monetary policy limited basic goods inflation by slowing consumption demand, the role of rent and education services stood out in the slowdown of services inflation.

Rigid Stance in Monetary Policy and Credit Contraction

On the monetary policy front, the TCMB's commitment to maintaining a determined stance against inflation indicates that financial conditions will remain tight. Key data regarding market dynamics are as follows:

■While the market's liquidity need was met via overnight funding at the upper band, no 1-week repo auction was held.

■Credit growth, which accelerated in the last quarter of 2025, slowed significantly starting from the second quarter of 2026.

■The current account deficit remained below historical averages relative to national income, while industrial production increased and the unemployment rate declined.

Hot Money Debate and Industry Concerns

During the Q&A session, the amount of money held in TL by domestic and foreign investors reaching $132 billion and whether this creates dependency on high interest rates was debated. Karahan views the increase in TL's share not as a risk but as a success factor, arguing that the contraction in the industry is more due to weak external demand and protectionist policies rather than solely financing costs.

While citizens struggle to extinguish the fire in their wallets, the Central Bank's "tight monetary policy" rhetoric has unfortunately not yet translated to prices on supermarket shelves. A year-end forecast of 28% is an official admission that consumer purchasing power will erode. The slowdown in credit growth, despite banks completely tightening credit taps, combined with the continuation of exorbitant file fees and credit card interest rate hikes, does not alleviate but rather increases the burden on the consumer by the financial system. As banks act stingily in lending, this structure, which fails to sustain the interest burden of existing debts, inflicts deep wounds on consumer finance.