Turkey's central bank has increased its year-end 2026 inflation forecast to 29.5%, up 1.5 percentage points from its previous estimate, Governor Karahan said on Thursday while presenting the final Inflation Report of the year.
The upward revision was accompanied by adjustments to projections for subsequent years. The 2027 year-end forecast and interim target were moved to 21% from 15%, while the 2028 projection rose to 13.5% from 9%.
Karahan pointed to a slowdown in underlying inflation despite ongoing supply shocks and weakening domestic demand. Monthly underlying inflation dropped to 1.8% in the third quarter, while annualized underlying inflation fell to 23.7% in October, approximately 6 percentage points below headline inflation.
The central bank said geopolitical supply shocks continue to limit the decline in headline inflation and create upside risks. It stated that these factors require maintaining a cautious and tight monetary policy stance.
The revised forecasts underscore the challenges facing Turkey's economy as it navigates persistent price pressures. The central bank's emphasis on underlying inflation trends suggests that while some measures show improvement, the overall inflation outlook remains elevated.
Policymakers will need to balance the need to control inflation with the risks posed by supply-side disruptions and softening demand. The central bank's commitment to a tight stance indicates that monetary policy will remain restrictive for the foreseeable future.
The Inflation Report presentation comes at a critical time for Turkey's economy, with businesses and consumers closely watching for signals on the direction of policy. The central bank's updated projections provide insight into its assessment of inflationary dynamics and the appropriate policy response.
As the year draws to a close, the central bank's revised forecasts will serve as a benchmark for expectations. The move to raise projections for 2026, 2027, and 2028 reflects a recognition that inflation may take longer to return to target levels than previously anticipated.