Turkey lifts 2026 inflation forecast to 28% on geopolitical oil shocks
The Turkish central bank has increased its year-end 2026 inflation projection to 28 percent, signaling to investors that geopolitical energy shocks continue to complicate the country's disinflation path despite recent currency stability.
Turkey’s central bank raised its official inflation forecast for the end of 2026 to 28 percent in its quarterly report on August 13. The new projection replaces the 26 percent range the monetary authority communicated in May, reflecting persistent price pressures across the economy.
Policymakers left their end-2026 interim inflation target unchanged at 24 percent, while the official long-term target remains at 5 percent. However, market participants largely dismiss these official benchmarks, as actual consumer price index readings have hovered stubbornly around 32 percent for months.
TurkStat reported July inflation at 31.75 percent, a marginal dip from 32.11 percent in June. Meanwhile, financial institutions have pushed their own year-end 2026 expectations above 30 percent, driven primarily by volatile crude oil markets following the February 28 US and Israeli attack on Iran.
Central bank governor Fatih Karahan told reporters that the worst of the war's economic impact is likely behind the country. The monetary authority slightly lowered its 2026 Brent crude forecast to $88 per barrel, though this remains vastly higher than the assumptions used earlier in the year.
To mitigate energy costs, President Recep Tayyip Erdogan temporarily eliminated the special consumption tax on diesel fuel through August. This measure brought the price of a litre of diesel down to 80 Turkish lira from nearly 90 lira, though a monthly tax increase of 3 lira will resume in September.
The monetary policy committee kept its benchmark one-week repo rate steady at 37 percent in July and will meet again on September 10. Market professionals are watching for a revival of the overnight window rate to 40 percent before any eventual cuts to the main policy rate.
Despite the high inflation environment, the Turkish lira remains relatively stable against the US dollar, supported by slow but positive portfolio flows. Addressing business demands for cheaper credit, the governor argued that shifting toward services and away from manufacturing is a natural progression for wealthier economies.
