Turkey’s central bank on February 7 hiked its end-2025 official inflation "target" to 24% y/y in its latest quarterly inflation report from 21% y/y in the previous report released in November.

Also, the upper boundary of the end-of-year forecast range was moved up to 29% y/y from 26% y/y.

On paper, the central bank releases "forecasts", rather than “targets”, in its inflation reports. The official inflation target stands at 5% y/y.

However, in press conferences held since August 2023, officials have suggested that they actually treat their “forecasts” as their "targets".

On May 22, the central bank will release its next inflation report and updated forecasts.

Surprise move

During the regular press conference held to present the report, central bank governor Fatih Karahan and his deputies Cevdet Akcay and Hatice Karahan did not say much.

The inflation report is the first of the year. Attention rises through the end of the year as the focus turns to whether the end-year "forecast" or "target" will be met.

On February 3, bne Intellinews noted: “On February 7, the central bank will release its new inflation report and updated forecasts. Most probably, the authority will not change its end-2025 'target'.”

Lately, the authority has been reiterating how it treats its "forecasts" as "targets". The way things used to be, it would wait until the last minute (the fourth and last inflation report of the year that is released in November) to move up its numbers.

The central bank was asked during the press conference why the end-year "target" has been updated even though inflation in January inflation came in within the targeted range. The governor said that the move did not suggest an easing, although the central bank was now "targeting" a higher figure.

What the monetary management said during the press conference suggests that they do not want the market to think that monetary policy is moving on "autopilot". Thus, by updating their end-year "target" now, they have set out to give the message that nothing is certain and they are at the wheel.

38% in March

During the previous press conference held in November, the governor said that the regulator saw official annual inflation at 38% y/y in March.

The seasonally-adjusted monthly inflation figures would edge up a little in 1Q25 (due to wage hikes and new year price/fee updates) compared to the 2%s in 4Q24.

They would, meanwhile, fall below the 1.5%-level starting from 3Q25 and end the year in and around the 1.3%s (closer to the 1%-level).

42% in January

On February 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s consumer price index (CPI) inflation officially stood at 42% y/y in January versus 44% y/y at end-2024.

TUIK’s inflation series peaked at 75.45% in May last year. Subsequently, it quickly fell back to the 40%s in September thanks to the base effect.

The 30%s may arrive with the February release. Or March at the latest. It is near certain that the March figure will begin with a 3.

During the press conference held on February 7, the discussion also turned to whether the headline figure will get stuck in the 30s.

The central bank management is not sure about the level at which inflation will get stuck. However, a figure below the 30%-level for end-2025 seems a little bit too reliant on the eyebrow-raising "work" of TUIK, as things stand.

Another 250bp cut almost certain on March 6

On December 26, the monetary policy committee (MPC) of Turkey’s central bank launched its monetary easing cycle with a 250bp rate cut. On January 23, it delivered another 250bp rate cut in line with expectations.

On March 6, the MPC will hold its next meeting and, as things stand, another 250bp cut seems almost certain (unless the management again opts to give the message that the wheel is not on autopilot).

The MPC will hold eight meetings in 2025. If it delivers a 250bp cut at each of the remaining seven meetings, the policy rate will fall to 27.5% from the current 45%.

Given that the upper boundary of the authority's forecast range for end-2025 official inflation has been moved up to 29% y/y, it is now almost certain that the MPC will remain on hold at one or two meetings.

On November 29, TUIK said that Turkey had entered a technical recession with the 3Q official GDP release.

On February 28, TUIK will release the 4Q data, which will most probably suggest that the country has exited the technical recession.

According to the governor, the output gap has turned negative (official GDP growth releases fell below potential growth, which could be simplified as long-term average growth) in 3Q24 and will remain there.

No change in lira policy

The USD/TRY rate is still testing the 36-level, with the nominal devaluation and real lira appreciation policy remaining on track.

Turkey’s CDS remain below the 300-level, while the yield on the Turkish government’s 10-year eurobonds remains above the 7%-level.

Looking at the global markets, the situation has calmed down a little since the "Orange man" at the White House delayed his tariffs for one month.

The EUR/USD pair is hovering in the 1.03s.