Ankara: Trkiye is anticipated to signal the continuation of its tight monetary policy when the Central Bank unveils its upcoming inflation report. This move aligns with the country's ongoing disinflation trend, which proceeds in line with a soft-landing scenario, as explained by a senior economist to Anadolu.
According to Anadolu Agency, Zumrut Imamoglu, a senior Trkiye economist at the Japan-based financial institution Nomura, noted that October's inflation rate was 32.87% annually, which was lower than market expectations. She projected that inflation would be around 31.2% by the end of the year. Nomura revised its outlook due to market volatility, global tariff effects, rising gold prices, and weather-related shocks impacting food costs.
Imamoglu highlighted that adverse weather conditions, such as spring frost and summer drought, had driven food prices beyond initial projections. She indicated that year-end inflation could potentially fall below 30% if the unexpected impact on food inflation was excluded. She emphasized that various factors, including political, global, and climate issues, had influenced the disinflation process, which, although slower than anticipated, was still underway.
Disinflation requires long-term and costly policy choices, but the burden is temporary, according to Imamoglu. She mentioned that since June 2023, the economic administration has aimed for a soft landing without taking steps to hasten a recession. This approach aligns with a slightly delayed inflation path.
The Central Bank's fourth inflation report of the year, scheduled for release on November 7, might include upward revisions to inflation forecasts, according to Imamoglu. She suggested that the bank might maintain its inflation targets for 2025 and 2026 at 24% and 16%, respectively, with the current 2025 forecast standing at 25-29%. The bank may increase this rate to a range of 28-32%, while the 2026 estimate might fall in the range of 13-19%.
Nomura anticipates Trkiye's year-end inflation to be around 21-22% with a policy rate of 28% in 2026. Imamoglu projected a US dollar/Turkish lira exchange rate of 43-43.5 by the end of 2025 and 51 by the end of 2026, indicating a continued, albeit slow, real appreciation of the lira.
Imamoglu expressed confidence that inflation would ease next year, although the precise outcome might fall short of targets. She noted that this phenomenon is common worldwide, and even if the target is not fully achieved, any progress is beneficial. Lowering inflation to sustainable levels is key to ensuring long-term, stable growth, she added.
Foreign investors remain focused on carry-trade opportunities, according to Imamoglu. They are closely monitoring the situation for opportunities to purchase long-term Turkish lira-denominated debt instruments. Recent inflows into bonds have been observed, with foreign investors holding approximately 6.5% of positions. However, more data points, including inflation and minimum wage statistics, are needed to assess further developments.