Turkey’s 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%.

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

It was in February that the central bank hiked its end-2025 official inflation "target" to 24% in its previous inflation report. It was move up from the 21% stated in the November report. The upper boundary of the forecast range was in February moved up to 29% from 26%.

On paper, the central bank releases "forecasts", rather than “targets” in its inflation reports. The official inflation target stands at 5% y/y.

However, in press conferences held since August 2023, officials have suggested that they actually treat their “forecasts” as their "targets".

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

38% in April

On May 5, the Turkish Statistical Institute (TUIK, or TurkStat) said that official inflation dipped further to 37.86% in April.

At close to 38%, Turkey fell to sixth place in the world inflation league. It is the indisputable leader of the inflation table among the OECD countries.

TUIK also posted a monthly official inflation figure of 3.00% for April, an acceleration on the 2.46% registered for March.

May below April

The May inflation release will come in below April's 3% m/m, governor Fatih Karahan said on May 22 during a press conference.

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

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. 

Karahan reiterated that the seasonally-adjusted monthly figure will end the year at a little bit above the 1%-level.

Rate cut on June 19

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

Lately, pressure on the USD/TRY, which remains in the 38s, has eased. The meltdown in the central bank’s reserves and portfolio outflows has at the same time stopped.

It could be said that the Erdogan regime has overcome the market stress that was created by the jailing of Istanbul mayor and presidential candidate Ekrem Imamoglu as well as US President Donald Trump’s tariff shocks in April.

As a result, the central bank currently has a stronger hand to return to its easing path.

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%.

Funding rate to approach one-week rate from overnight rate

Recently, the banking system’s liquidity shortage has eased as the central bank is once again an FX buyer in the market (providing lira to the system in exchange). As a result, the funding rate is supposed to approach the one-week rate from the overnight rate.

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 is on the cards.

The authority even has 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).