Turkey's 2026 Economic Trajectory: War Shock, Inflation and Interest Rate Policies

The war‑driven global uncertainty is reshaping Turkey’s inflation, interest‑rate and exchange‑rate policies; this report dissects the current developments and possible scenarios.

Macro‑Economic Echoes of the Conflict

■The US‑Israel‑Iran confrontation accelerated capital outflows and pushed global rates up by +150 basis points.

■Turkey’s external borrowing costs rose by 5% following the shock.

■Energy import expenses surged by 30%, tightening the current‑account balance.

Interest‑Rate Stagnation: CBRT’s Decision

■At the 23 July PPK meeting, the Policy Rate was held steady at 37%.

■While the ECB signaled a 0.5% hike, the CBRT’s 0% change in July underscores a tight monetary stance.

■With inflation expected to close at 29‑30%, the real policy rate is projected to sit 5 percentage points above inflation.

Exchange‑Rate Policy and Real‑Appreciation Risk

■The Lira could lose 20% in 2026, amounting to an additional 2% depreciation over 2025‑2026.

■The USD/EUR pair may retreat to 1.15, worsening the export‑import balance.

■Goldman Sachs estimates a 20% rise in post‑war risk, accelerating the Lira’s real depreciation.

Growth and Inflation Scenarios: Base, Optimistic, Pessimistic

■Base Scenario (Dec 2025): Inflation 23%, Growth 4%, Lira depreciation 20%.

■Optimistic Scenario: Inflation 18%, Rate 22%, Growth 4.2%.

■Pessimistic Scenario: Inflation 29%, Rate 35%, Growth 3.8%.

■The last six months have trended closer to the pessimistic outlook.

Strategic Recommendation: Current‑Account Gap and Production Model

■Shift from broad subsidies to low‑cost, export‑focused incentives.

■Fiscal policy should reallocate from demand‑stimulating spending to supply‑side investments.

■Reversing de‑inflation measures is essential to avoid abrupt currency swings.

Turkey’s macro‑economic framework is undergoing a stress test of external shocks and internal policy consistency. Elevated inflation compels a tight monetary stance, while the sustainability of the Lira’s real depreciation hinges on structural reforms to the current‑account gap. In the short term, stability demands targeted export incentives and supply‑side fiscal spending, preserving long‑term growth potential.