Turkey’s consumer price index (CPI) inflation officially stood at 35.41% y/y in May versus 37.86% y/y in April and 44% y/y at end-2024, the Turkish Statistical Institute (TUIK, or TurkStat) said on June 3.

It is not advisable to plan, price or draw inferences based on TUIK data. There is widespread concern about the reliability of Turkey’s official data series.

At 35%, Turkey fell to eighth place in the world inflation league.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 74% for May, following its assessment of 80% for April.

Monthly figure nosedives

TUIK also posted a monthly official inflation figure of 1.53% for May, a sharp fall compared to the 3.00% released for April.

The escalation in inflation in the monthly figure came in response to the market stress seen following the jailing of Istanbul mayor Ekrem Imamoglu on March 19. The limited rise in the monthly figure did not cause a deterioration in the headline annual figure.

As things stand, it could be said that the regime has overcome the market turbulence with the passing of May.

In the coming months, TUIK is set to deliver further outcomes in the 1-2%s for the official monthly headline indicator.

Below 30% at end-2025

On May 22, the central bank on May 22 left its end-2025 official inflation "target" unchanged at 24% y/y in its latest quarterly inflation report.

The upper boundary of the forecast range was also kept unchanged by the authority at 29%.

The authority expected seasonally-adjusted monthly inflation figures to edge up a little in 1Q25 (due to wage hikes and new year price/fee updates) in comparison to the 2%s in 4Q24.

The expectation is, meanwhile, that the figures will fall below the 1.5%-level starting from 3Q25.

Central bank governor Fatih Karahan reiterated on May 22 that the seasonally-adjusted monthly figure will end the year at a little bit above the 1%-level.

On August 14, the central bank will release its next inflation report and updated forecasts.

Rate cut on June 19

On June 19, the monetary policy committee (MPC) of Turkey’s central bank will hold its next rates meeting.

Lately, pressure on the USD/TRY has eased as the government delivered a limited devaluation that brought the pair up to the 39s.

The meltdown in the central bank’s reserves and portfolio outflows ended. In the past few weeks, the central bank has been slowly rebuilding the reserves again.

Funding rate remains at overnight rate

As a result, the central bank has a stronger hand to return to its easing path. However, the regime is, on the other hand, still treading carefully.

On May 30, TUIK released an official gross domestic product (GDP) rate of 2.00% y/y for 1Q25, below market expectations and the government’s 4% target for 2025.

The central bank, meanwhile, sticks with its weighted average funding rate and, as a result, the interbank market rates at the overnight lending rate, which stands at 49%.

At the last rate-setting meeting held on April 17, the MPC hiked its main policy rate (one-week repo rate) by 350bp to 46%.

It also hiked its overnight lending rate by 300bp to 49% and its overnight borrowing rate by 350bp to 44.5%.

First cut the overnight rate?

Recently, the banking system’s liquidity shortage moderated with the central bank once again an FX buyer in the market (providing lira to the system in exchange). As a result, the expectation was that the funding rate would approach the one-week rate from the overnight rate.

However, the central bank has not let the funding rate and market rates decline.

So, a 150bp cut in the overnight rate on June 19 for the sake of fixing the symmetry of the so-called interest rate corridor seems a higher possibility, as things stand.

This would be despite the authority even having the space to deliver a cut in the main policy rate of between 100bp (this would bring the rate to 45% to open the way to the 250-bp rate cuts seen in the previous path) and 350bp (this would bring the rate to 42.5%, a level that was on the cards on the previous path).