Turkey’s Central Bank Reaffirms Commitment to Disinflation Amid Global and Domestic Challenges

In a recent briefing on Turkey’s Inflation Report for 2026, the central bank’s governor outlined the progress made in containing inflation and stabilizing the economy, while also highlighting the complex landscape of global and domestic risks confronting policymakers.

The central bank’s renewed focus on a tight monetary policy throughout 2025 began yielding measurable results, with inflation on a gradual downward trend and inertia in previously sticky service sectors, particularly rents, starting to ease. This rebalancing was achieved even as external uncertainties, including trade protectionism and geopolitical tensions, lingered over the global economy. Despite some improvement in worldwide growth forecasts and the partial recovery of international demand, heightened volatility in commodity prices—especially in energy and food—continues to feed inflationary pressures both globally and domestically.

On the home front, Turkey’s tighter monetary stance shifted growth drivers from consumption toward increased investment, while domestic demand remained moderate. The country saw marginal improvements in key economic indicators such as industrial production and labor market data. The current account deficit, though slightly rising, stayed below its historical average, reflecting the cautious recovery of domestic demand and external trade.

Inflation showed signs of easing, dropping to 30.7% in January 2026, and core inflation indicators improved. However, fluctuations in food prices—linked to supply shocks and weather events—contributed to short-term upward price pressures. Services inflation, driven largely by rents and education, began to moderate following regulatory and market-driven shifts. Although inflation expectations have improved across various sectors, they still exceed central bank forecasts, underscoring persistent risks to the disinflation trajectory.

In response to these mixed signals, the central bank has pursued a prudent reduction in its policy rate, currently set at 37%, and continues to enforce macroprudential measures to ensure effective monetary transmission. Active management of liquidity through deposit auctions and measured increases in government bond holdings have supported operational flexibility. The central bank has also refined lending caps and deposit targets to align credit growth with its disinflation aims.

Turkey’s external financial situation has benefitted from strengthened capital inflows and rising reserves, reflecting renewed investor confidence and strong gold positions amid volatile markets. Nevertheless, the central bank remains vigilant, citing still-elevated uncertainty in international markets, potential commodity price swings, and the legacy impacts of past inflation.

Looking ahead, the central bank projects inflation to fall within the 15–21% range by the end of 2026 and decline further to 6–12% for 2027, with medium-term targets set at 8% by 2028 and 5% beyond. Achieving these ambitious goals will require maintaining a disciplined monetary policy, sustaining macroprudential controls, and reinforcing improvements in inflation expectations and pricing behavior.

The central bank’s resolve to do “whatever it takes” to secure price stability underscores the importance of prudent policy in nurturing sustainable economic growth and safeguarding social welfare amid a volatile global backdrop.