Publications

Consumer inflation came in well above the market expectations at 3.2% m/m and 33.3% y/y. The deterioration in the underlying trend and its potential impact on still unanchored inflation expectations materially increase the likelihood of a year-end inflation of above 30%, also raising upside risks on the next year’s path.

Our baseline scenario assumes the continuation of the restrictive policies prioritizing disinflation in the short term. Global financial volatility affecting demand for EM assets, Trump policies particularly impacting Europe, and increasing domestic unknowns are near term risks on the Turkish economy, keeping us cautious.

The CBRT lowered the policy rate by 250bps to 40.5%, higher than the consensus of 200 bps, with also a similar size of cuts in the corridor (39%-43.5%). Considering the challenges ahead, we still maintain the view of reducing the size of the cuts going ahead after today’s decision.

Consumer prices rose by 2.04% m/m in August, above our expectation and consensus (1.75%), resulting in an annual inflation of 32.95%. We maintain our inflation forecast of 30% by end 2025 and assess that the CBRT might reduce the pace of cuts going ahead in order to contain the risk of sticking to 1.5-2% monthly CPI trend.

The sensitivity on growth and employment might continue to shape the policy mix with a trade-off of a slower disinflation path. We expect the Medium Term Program (MTP), to be revised in early September, to have more color on the political preferences on near term growth outlook.

Hard data confirmed a soft landing in 2Q25, while early 3Q25 indicators still signal weakness in activity. We maintain our 2025 GDP forecast at 3.5% for now, though risks are slightly tilted to the downside.

Consumer prices rose by 2.06% m/m, lower than both consensus (2.4%) and our expectation (2.5%), driving annual inflation down to 33.5%. Considering unanchored inflation expectations, high services inertia and upward pressure on the food inflation going forward, we expect the year-end inflation to reach 30%.

The overall total FX position of the economy improved in May25 compared to Dec24. The composition of external debt started to shift again between the public sector and the real sector.