Turkish market lifts inflation outlook, pushes first rate cut to September
Office towers stand in the Istanbul Financial Center (IFC) in Atasehir, Istanbul, Türkiye. (Adobe Stock Photo)
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Market participants in Türkiye slightly raised their year-end inflation expectations in June, while forecasting that policymakers will not resume rate cuts before September, according to the latest survey released by the Central Bank of the Republic of Türkiye (CBRT).The survey showed that the year-end consumer inflation forecast increased to 29.1% from 28.9% in the previous survey period, while respondents trimmed their expectation for June monthly inflation to 1.4% from 1.5% and expected annual inflation to remain unchanged at 32.6%.
While the year-end inflation outlook moved higher, participants slightly lowered their medium-term forecasts, with the 12-month inflation expectation remaining largely unchanged at 23.8%, while the 24-month forecast declined to 18.3% from 18.4%.According to the survey, market participants on average expect the CBRT to hold its policy rate steady at 37% at the next Monetary Policy Committee (MPC) meeting before lowering it to 36.3% on average at the following meeting, while the average forecast puts the rate at 34.7% by the end of 2026, 30.1% in 12 months, 25.7% by the end of 2027 and 22.1% in 24 months.Türkiye's inflation slowed to 1.7% month-on-month in May, while the annual rate ticked up to 32.6%.The central bank left its policy rate unchanged at 37% for a third consecutive meeting this week, citing ongoing inflationary pressures amid the Middle East conflict, and continued to fund the market at 40%.
Column chart shows the inflation path implied by market participants' expectations in the CBRT's June 2026 Market Participants Survey, from June 2026 to June 2028. (Chart via CBRT)
Markets raise deficit forecasts, trim growth outlookRespondents lowered their year-end dollar/TL forecast to 51.4692 from 51.5711, compared with the current level of around 46.23, while raising their 12-month exchange rate expectation to 55.7196 from 54.6923.Participants also revised up their current account deficit forecasts, with the year-end estimate increasing to $49.2 billion from $47.8 billion and the projection for next year rising to $42.5 billion from $41.6 billion.The upward revision followed April data showing a monthly current account deficit of $5.7 billion, although the 12-month rolling deficit fell to around $37 billion, its first decline in recent months, according to the CBRT.Growth expectations, meanwhile, softened slightly following first-quarter data that showed Türkiye's economy expanding 2.5% year-on-year and just 0.1% quarter-on-quarter.Respondents lowered their forecast for 2026 growth to 3.2% from 3.3%, while keeping their outlook for 2027 unchanged at 4.1%.
