TURKEY: Moderate Upward Revision Expected to CBRT’s End-2025 Inflation Target
The CBRT’s Inflation Report will be presented by Governor Fatih Karahan tomorrow morning at 07:30GMT/10:30 local time. The central bank’s current end-2025 inflation forecast of 24% (with a 19-26% forecast range) is below that of most sell-side analysts, meaning some revisions here are expected. Most are expecting the forecast to be revised higher to around 25-27%, which would require monthly inflation to average around 1.5% until December (CPI: +2.5% M/M; +38.10% Y/Y in March). Such a revision would mean even if the path of inflation is less favourable than forecast for the remainder of the year, it will likely reach at least close to the upper forecast range by December.
- Also of note will be the central bank’s assessment of recent lira weakness and its feedthrough to inflation. The lira has fallen around 6% against the dollar since the arrest of Istanbul Mayor Ekrem Imamoglu on March 19 and ensuing financial market turmoil. The CBRT have recently published a working paper on FX passthrough, indicating that officials will be considering whether the effects are starting to abate.
- M Cokun Cangoz, a former senior government advisor and now a director at Ankara's Economic Policy Research Foundation of Turkey, told MNI in an interview earlier this month that “We expect inflation to end the year 1.5–2 points above the CBRT’s upper target of 29%, contingent on global commodity price developments.”
- Meanwhile, Selva Demiralp, a leading Turkish economist, told MNI, “I would expect the CBRT to revise up its inflation target — probably in May, when the second Inflation Report of the year is released — because 24% is just way too optimistic. Maybe they’ll raise the baseline to 26%, which would push the upper bound to 32%. If inflation then reaches 36%, they’d probably still feel relatively comfortable.”
- Bloomberg Economics think an upward revision to the CBRT’s inflation trajectory is warranted but expect any forecast changes to underwhelm relative to market expectations. Their call is for inflation to end the year at 28%. They also think the central bank’s revised forecasts will back their baseline for a slow-paced easing of the policy rate, eyeing a cut in June.
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