Türkiye | The CBRT is going big and pulling no punches

Summary

The Central Bank (CBRT) reduced the policy rate by 150bps to 38.0%, following the split among the rate cut expectations of 100-200bps. We forecast year end consumer inflation to be 25% on elevated inflation expectations and robust inertia, where the CBRT might continue to cut the rate toward 32% at the end of 2026.

Key points

• Key points:
• The CBRT is again optimistic about the demand conditions and the disinflation process, despite the higher than expected GDP momentum in 3Q25 boosted by domestic demand and the continuing stickiness in inflation trend above 2%.
• The CBRT also refer to signs of improvement in inflation expectations and pricing behavior, where we have doubts going forward under the easing bias of the CBRT and all expectations staying even above the upper bound of the CBRT forecast range (13-19%) for 2026.
• Unanchored inflation expectations, second round effects and strong inertia will preserve the challenges ahead. In this regard, we maintain the view that financial stability might still be prioritized in a way that risks are contained, but inflation stays high.
• Considering upward pressure on inflation outlook in the early months of 2026 stemming from price and wage adjustments, along with the subsequent second-round effects, we continue to expect the CBRT to proceed with gradual 100 bps rate cuts until the second half of 2026.

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