Turkish Lira: Rising inflation expectations pressure TRY – Commerzbank

Tatha Ghose at Commerzbank highlights that Turkey’s market-based inflation expectations for 2026 and 12 months ahead have risen again, undermining confidence in disinflation. Survey participants see Central Bank of the Republic of Türkiye (CBRT) holding rates at 37% then cutting to 34.7% by year-end, a mix he deems negative for the Lira given underlying monthly inflation near 2% and a higher end-2026 USD/TRY forecast.

CBRT stance seen as lira-negative

"Turkey’s central bank (CBRT) published its latest survey of market participants yesterday, and the message was not encouraging. The year-end 2026 CPI forecast edged up to 29.2%y/y in July from 29.1%y/y in June, extending the steady rise since the beginning of the year. The 12-month ahead expectation also increased, to 23.95%, while only the 24-month forecast softened, to 17.8% (we treat this latter as a lazily mean-reverting theoretical forecast with little link with present reality)."

"The relevant point is that near-term expectations have begun to rise again. And this was not limited to just the period after the Iran war. This means that the market does not share policymakers’ stated message that disinflation is proceeding in a sufficiently convincing manner."

"It also means that fresh shocks – whether from oil, the lira or domestic politics – are feeding into expectations rather than being looked through."

"Rate expectations also tell an uncomfortable story. Participants expect CBRT to keep the policy rate unchanged at 37.0% at this week’s rate meeting, but then cut it to 34.7% by year-end (the odd number is from survey averaging). This would precisely be the wrong combination for the lira if underlying inflation momentum were to remain close to 2%m/m, as we think it will."

"The same survey lifted the end-2026 USD/TRY forecast to 51.55. But we fear that it can end up higher."