Inflation expectations in Türkiye for the end of the year have edged down this month, according to a closely watched central bank survey on Friday, reflecting growing confidence in the government’s disinflationary policies.
Inflation is expected to end in 2024 at 43.14%, according to the September market participants survey by the Central Bank of the Republic of Türkiye (CBRT), a decrease from the 43.31% estimate in August.
Expectations for 12 months ahead dropped from 27.71% to 27.49%, while the 24-month outlook fell from 19.30% to 18.38%.
The figures align closely with the updated targets in the government’s Medium-Term Program (MTP), which forecasts inflation to end 2024 at 41.5% and to decrease further to 17.5% by the end of 2025.
Officials have long seen market expectations as a major challenge and sought to ensure they converge more with their targets.
Treasury and Finance Minister Mehmet Şimşek expressed optimism about the trend, highlighting the latest drop as an encouraging sign.
“The improvement in inflation expectations supports our program targets,” Şimşek wrote on social media platform X.
“The 12-month and 24-month inflation expectations, which have been falling for the past 11 months, have decreased to 27.5% and 18.4%, respectively.”
Fiscal discipline
Türkiye has been grappling with persistently high growth in price gains, a challenge exacerbated by global supply chain disruptions and fluctuating energy prices.
Authorities have been implementing a tight monetary and fiscal policy since last year to tackle inflation, which dipped below 52% in August annually, compared to its peak of 75% this May.
The sharp drop is expected to continue in the coming months as the tightening campaign brings price relief.
The central bank has hiked interest rates by 4,150 basis points since June last year, to 50%, and has maintained that it will keep its monetary policy tight until inflation aligns with its targets.
To backstop the rate hikes, authorities have also adjusted regulations to tighten credit conditions, and the government has adopted some fiscal tightening measures to help ease the current account deficit and rebuild reserves.
The central bank forecasts inflation to slow to 38% at the end of this year and 14% next, projecting it to decline further to 9% by the end of 2026.
Updated medium-term economic program forecasts, released last week, see inflation falling to 9.7% by 2026.
“Annual inflation, which has fallen by 23.5 percentage points over the last three months, is expected to drop below 50% in September,” Şimşek said on Friday.
He also reiterated the government’s fiscal discipline strategy, noting that they aim to reduce the budget deficit-to-gross domestic product (GDP) ratio from a projected 4.9% in 2024 to 3.1% next year.
“Thus, fiscal discipline will strongly support disinflation,” Şimşek said, emphasizing that coordinated policies will ensure price stability and address structural inflationary rigidities to permanently improve citizens’ purchasing power.
Lira, interest rate, growth projections
The CBRT survey also showed a slight adjustment in the year-end exchange rate forecast for the Turkish lira against the U.S. dollar, from 37.27 to 37.16.
However, the 12-month forecast for the lira weakened slightly, rising from 42.03 to 42.43 per dollar.
On the monetary policy front, forecasts related to the CBRT’s benchmark policy rate remained unchanged for this month.
However, the expectation for the one-week repo rate 12 months from now decreased from 33.30% to 31.66%, and the 24-month projection dropped from 21.61% to 20.85%.
Economic growth projections were also revised downward.
The year-end growth estimate was reduced from 3.4% to 3.2%, and the 2025 projection was adjusted from 3.5% to 3.4%.
On the current account front, the year-end deficit projection declined from $25.5 billion to $22.2 billion.
The forecast for the end of 2025 also improved, dropping from $25.7 billion to $24.3 billion.
