Türkiye’s Central Bank Revises Inflation Forecasts for 2025

The Central Bank of Türkiye (CBT) has significantly revised its inflation projections for 2025 and beyond. The new forecast for 2024 has been raised to 44% (from 38%), for 2025 to 21% (from 14%), and for 2026 to 12% (from 9%). This revision reflects several factors, including the recent surge in food prices, particularly fresh fruits and vegetables, and rising rents, which are influenced by structural factors such as earthquakes, urban renewal, and changes to rent control policies.

Governor Fatih Karahan downplayed the delay in achieving previous inflation targets, noting that the goal of disinflation is a multi-year process and a few months’ delay is not significant. He also emphasized that the revision does not signal a change in monetary policy.

The CBT remains committed to keeping interest rates high until a sustained decline in underlying inflation is achieved.

Key factors driving the revised inflation forecasts include:

Underlying inflation and inertia: A 3.9 percentage point increase for 2024 and 3.5 points for 2025.

Food prices: An additional 1.6 points for 2024 and 1.9 points for 2025.

Lira import prices: 0.2 points for 2024 and 0.5 points for 2025.

Output gap: An upward revision of 0.3 points for 2024 and 0.2 points for 2025.

Administered prices: With no impact assumed for 2024, but an increase of 0.9 points in 2025.

Despite these upward revisions, the CBT is maintaining its commitment to a high interest rate policy and expects inflation to decelerate gradually. The central bank also anticipates that inflation expectations will converge to its new forecast range, and that inflation will decline to around 1.5% month-on-month by the third quarter of 2025. However, temporary pressures are expected in early 2025 due to tax revisions and uncertainties surrounding minimum wage hikes.