Turkey’s central bank is widely expected to raise its 2026 inflation outlook this week and may slow or even pause interest rate cuts in the coming months, analysts said, following a renewed surge in prices in January. Some officials and economists suggest the bank may either reduce the pace of rate cuts that began over a year ago or tolerate a slower decline in inflation.
Many analysts anticipate a combination of both measures, potentially marking another obstacle in Turkey’s more than two-and-a-half-year effort to curb inflation and stabilise the economy after years of policy challenges that contributed to a prolonged cost-of-living crisis. Vice President Cevdet Yilmaz said on Saturday that whilst strict monetary and fiscal policies remain crucial, they are insufficient on their own, noting that supply-side reforms could also help contain inflation, which had peaked at 75% before easing to about 30% last month.
The next key milestone will be the central bank’s quarterly inflation report on Thursday. Analysts expect Governor Fatih Karahan to increase the year-end inflation forecast from the current 13–19% range to potentially as high as 23%, based on median estimates from a Reuters poll conducted on 28 January.
Karahan may also consider raising the interim end-2026 inflation target from 16%, although analysts believe this is less likely since the target is generally kept stable to guide market expectations.
Consumer price inflation rose nearly 5% month-on-month in January, exceeding forecasts and driven largely by higher food and beverage costs as well as annual price adjustments. Although inflation is expected to moderate to around 3% this month, persistently elevated monthly readings risk pushing back expectations for lower annual inflation, despite earlier government assurances that single-digit inflation would soon be achieved.
Hilmi Yavas, an independent economic strategist based in Istanbul, said the figures underscore the challenges Turkey faces in reducing inflation after the impact of previous policy decisions, adding that the central bank should revise its forecasts to reflect current conditions.
The bank’s monetary easing cycle has been uneven since it began reducing its benchmark interest rate from 50% in late 2024. The central bank briefly reversed course amid political instability before resuming rate cuts, lowering rates by successive reductions of 300, 250, 100, 150, and most recently 100 basis points, bringing the policy rate to 37% last month.
Having already moderated the pace of easing, the central bank warned in January about risks to its disinflation strategy and signalled it would tighten policy if inflation deviates significantly from interim targets. Some analysts believe rate cuts may need to be paused, possibly as early as the next policy meeting in March, to prevent such divergence.
JPMorgan recently raised its year-end inflation forecast to 24% from 23% and expects a series of 100-basis-point rate cuts throughout the year, although it noted the possibility of a smaller reduction in March due to rising food and restaurant prices during Ramadan.
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