Türkiye monetary policy expected to remain tight: Expert

LONDON

Türkiye is expected to signal that its tight monetary stance will continue when the Central Bank releases its next inflation report, as the country’s disinflation trend proceeds in line with a soft-landing scenario, a senior economist told Anadolu.

Zumrut Imamoglu, senior Türkiye economist at Japan-based financial institution Nomura, said October inflation came in at 32.87% annually, lower than market expectations.

She said inflation is expected to be around 31.2% by the end of the year, adding that Nomura revised its outlook due to market volatility, global tariff effects, rising gold prices and weather-related shocks to food costs.

Imamoglu said frost in spring and drought in summer drove food prices beyond projections.

“Year-end inflation could be below 30% if we excluded the unexpected impact on food inflation — I can’t really say a mistake was made but many factors like political, global, and climate issues came together and led disinflation to continue slower than we expected, but it is indeed happening; it is just that it may be a little hard to feel it,” she said.

She said disinflation requires long-term and costly policy choices but the burden is temporary. “The economic admin wants a soft landing, and since June 2023, they have yet to take any steps to quickly push the economy into a recession — parallel to soft landing, we also estimate a slightly delayed inflation path,” she said.

Imamoglu said the central bank’s fourth inflation report of the year, due on Nov. 7, may include upward revisions to inflation forecasts.

She said the bank may keep its inflation targets for 2025 and 2026 at 24% and 16%, noting that its existing 2025 forecast stands at 25-29%.

“The bank may increase this rate to a range of 28-32%, while the inflation estimate for the end of 2026 may be in the range of 13–19%,” she said. “We expect that the bank will signal that its tight stance will continue, while we may also hear its plans for a macro-prudential framework.”

Nomura expects Türkiye’s year-end inflation at 21-22% and its policy rate at 28% in 2026. Imamoglu said the bank foresees the US dollar/Turkish lira exchange rate at 43–43.5 at the end of 2025 and 51 at the end of 2026, projecting a continued, though slow, real appreciation of the lira.

Imamoglu said inflation will ease next year, but the exact outcome may fall short of targets. “This happens all over the world — even if the target isn’t met, the closer we get to it, the better,” she said.

“The current policy direction will lead Türkiye to lower inflation — it has been doing so for the past two years already, so there’s no doubt there, and lowering inflation to lower levels will be key in ensuring that growth is permanent, long-term, and sustainable,” she added.

She said foreign investors remain focused on carry-trade opportunities.

“Foreign investors are on the lookout for when they can purchase long-term Turkish lira-denominated debt instruments — they will also buy bonds if inflation falls rapidly,” she said.

“Lately, there have been some inflows into bonds and we see a foreign investor position of around 6.5% — this rate could rise further but we need to see more data points, including inflation and minimum wage,” she added.