Inflation in Türkiye is forecast to fall to 29.66% as of the end of the year, according to a survey by the country's central bank on Monday that showed expectations continued to improve ahead of a key policy rate meeting this week.
The projection is down from 29.86% expectation in June and 30.35% forecast in May, according to the Survey of Market Participants for June by the Central Bank of the Republic of Türkiye (CBRT).
Aggressive monetary tightening since mid-2023, combined with favorable energy prices, has helped reduce Türkiye's annual inflation rate by more than half over the past year.
The inflation lastly dipped to 35.05% in June. Monthly inflation was 1.37%, with price declines in key categories such as food and beverages reinforcing the central bank's view that a disinflation trend is taking hold.
The central bank has repeatedly cited expectations as one factor determining the course of its monetary policy.
In May, it maintained its year-end mid-point estimate for the consumer price index (CPI) at 24%, with an upper band of 29%. Turkish officials continue to emphasize that inflation will remain within this forecast band.
The better-than-expected June inflation print renewed expectations that the central bank would return to an interest rate-cutting cycle at the meeting of its Monetary Policy Committee (MPC) this Thursday.
All but one of the 17 economists in a Reuters poll forecast the bank to cut the policy rate this week. The median forecast was for a 250 basis-point cut to 43.50%, with predictions ranging from 42.50% to 44.50% among those expecting an easing step.
Thirteen respondents expected a cut of 250 basis points, while one predicted the bank to hold rates at 46%.
Most expect rate cuts to continue in the months ahead, with the policy rate falling to 36% by the end of 2025, according to the bank’s survey.
The monetary easing is likely to continue through at least the third quarter of 2026, an earlier poll of economists showed.
If delivered, the move would mark the first cut since a surprise 350 basis-point hike in April, which reversed an earlier easing cycle. That tightening helped stabilize markets after the jailing of Istanbul Mayor Ekrem Imamoğlu sent Turkish assets and the lira sharply lower in March.
Imamoğlu was arrested pending trial over graft charges.
Morgan Stanley also expects a 250 basis-point cut this month, followed by three additional cuts of the same size to bring the policy rate to 36% by year-end.
Markets see inflation 12 months from now falling to 23.39%, the CBRT survey showed on Monday. That is down from 24.56% in the June survey.
The 24-month inflation outlook edged down from 17.35% to 17.08%, the bank said.
On the currency front, participants revised their year-end dollar/lira forecast slightly upward to 43.72, from 43.57. The 12-month forecast for the exchange rate also rose from 47.04 to 47.70.
Meanwhile, gross domestic product (GDP) growth forecasts for 2025 and 2026 remained unchanged at 2.9% and 3.7%, respectively.
