Turkey’s central bank faces a growing credibility deficit because its habit of upwardly revising its own inflation forecasts leaves it looking like a passive follower of economic reality rather than an anchor for financial markets, Tatha Gosh of German lender Commerzbank (Frankfurt/CBK) wrote in a note to investors on August 27.

Gosh also warned that the authority’s repeated adjustments to its consumer price forecasts risk eroding the impact of its key policy communications.

"The market has not moved down towards Turkish central bank’s forecast. Turkey’s central bank has moved towards the market. This is the usual pattern every year: Turkey’s central bank begins with a good-looking year-end forecast, then progressively revises it higher as the horizon approaches and the original number becomes unbelievable," Gosh wrote.

"This matters for credibility. A central bank forecast is supposed to help anchor expectations, not merely capitulate with a lag," he added.

Credibility gap

The critique comes in the wake of the release of the central bank’s recent quarterly inflation report, in which policymakers raised their end-of-year inflation projection from 26% to 28%, citing persistent geopolitical friction, volatile energy dynamics and sticky food prices.

While monetary authorities framed the decision as a pragmatic response to exogenous supply-side shocks, foreign investors and institutional analysts increasingly view the trajectory as symptomatic of broader institutional inertia.

Gosh cautioned that if the pattern of post-hoc target adjustments continues, the market will cease to treat official guidance as a forward-looking compass.

“If private forecasters repeatedly move first and Turkey’s central bank only catches up at scheduled inflation report rounds, then the market will eventually treat inflation reports and mid-term plans as presentation documents rather than genuine forecasting tools,” he wrote.

That last sentence from Gosh might contain a typo or two. IntelliNews would argue that it is not that the markets “will” treat the reports and plans in this way, it is that they already are. In what seems to be a nod to the reality that has already set in, Gosh also wrote: “This is the usual pattern every year.”