MNI INTERVIEW: CBRT To Look Through Early 2026 Inflation Rise

The Central Bank of Turkey is likely to cut key interest rates by 150 basis points in January despite an uptick in inflation, with real rates seen narrowing to around 5% by year’s-end, a former senior official told MNI. 

January inflation is likely to be 4-4.5% in monthly terms, Ibrahim Unalmis said, due to the pass-through of new administrative prices - some of which rose by up to 19% - and an 8-9% increase in food prices. 

“When we put it all together, if the upper bound is 19% and we already have 4% inflation in January, it will be hard to reach the interim [CBRT inflation] target of 16% by the end of the year.”

Still, the CBRT should be able to press ahead with further easing, said Unalmis, who held several senior roles at the central bank, including director, markets and market analysis, between 2009 and 2019, noting also that inflation expectations have continued to improve among households, the real sector and economists. (See MNI EM INTERVIEW: More CBRT Cuts Boost De-anchoring Risk - Cangoz)

“The CBRT will lower rates cautiously, because they want a successful disinflation process and they don’t want to cut prematurely. They will look at the inflation rate on a meeting-by-meeting basis, and cut the policy rate as much as they can,” he said.

“I think they will cut by 150 basis points, which is fine. If there were a meeting in February, maybe a 100bp rate cut would be much more appropriate. But there is no meeting in February, so if they cut 100 basis points in January, the real rate will stay very high for two and a half months or so.”

The CBRT lowered its key one-week repo auction rate to 38% from 39.5% at the end of 2025, after annual inflation fell to 30.89% thanks to a combination in November and December of falling food prices, stable oil prices and early consumer discounts. (See MNI EM CBRT WATCH: Cuts 150 Bp, Underlines Continued Tight Policy)

YEAR-END INFLATION

Inflation can be expected to end the year at 23% and interest rates at 28% - high enough both to maintain tight monetary conditions and ensure the lira continues to be attractive, said Unalmis, a professor of economics at Bahcesehir University in Istanbul. (See MNI EM INTERVIEW: CBRT To Focus On Real Rate Stability - Demiralp)

Iran is perhaps the biggest source of potential upside risk, with Unalmis citing reports that a collapse in the political system could prompt up to two million refugees to cross into Turkey.

“That would have an inflationary impact on food, transport and accommodation costs, to give just a few examples.”

Barring shocks, Turkey’s economy is likely to grow by 4% this year, with risks to the upside, especially for the second half of the year, when central bank restrictions on credit growth may be selectively relaxed, Unalmis said. 

“[Finance Minister] Mehmet Simsek has said that the fiscal situation is improving, with the rollover rates of Treasuries expected below 100%, versus 130% to 140% in recent years, which will mean excess resources at banks that can be provided to the real sector and households,” he said.

“In the second half of the year I would expect the economic management team will want to see a slight increase in credit growth rates, especially as they know that tight monetary policy will continue, albeit not as tight as the first half of the year.”

CHANGES AT THE CBRT

This year will also be one of change for the CBRT, Unalmis said, with three seats on the Monetary Policy Committee set to become empty after May, two of which are likely to be filled, with precise roles also to be decided.

The recent appointment of former Federal Reserve and JP Morgan economist Murat Tasci was a “good decision,” but while the trend of appointing candidates from outside Turkey could continue, Unalmis expected one of the new deputy governors to be someone who is already an employee of the central bank. 

“It’s not just about the macroeconomic side; institutional understanding is very important,” he said.