Turkiye MPC Preview: Easing Cycle Will Continue on January 22
Bottom Line: We think Central Bank of Turkiye (CBRT) will likely reduce the policy rate to 36.5%-37% during the MPC meeting scheduled for January 22 supported by continued deceleration trend in inflation in December and relative TRY stability. CBRT will have to proceed carefully on interest-rate adjustments on a meeting-by-meeting basis in 2026 given risks such as deteriorated inflation expectations and pricing behaviour coupled with unpredictable outlook for the global economy. Our end-year key rate prediction remains at 29.0% for 2026.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – April 2026
Source: Continuum Economics
As the deceleration trend in inflation continued moderately in December supported by lagged impacts of previous monetary tightening, tighter fiscal measures and relative TRY stability, we think this left room of choice for the CBRT during the next MPC meeting scheduled for January 22. (Note: Inflation print stood at 30.9% y/y in December driven by food, housing and education price. Monthly inflation stayed below 1% in December hitting 0.89%, and annual core inflation edged down to 31.1% from 31.7% the prior month, marking the lowest reading in four years).
Given risks such as deteriorated inflation expectations and pricing behaviour coupled with adverse global developments, we think cautious CBRT will likely reduce the policy rate to 36.5%-37% on January 22.
We believe CBRT will have to proceed carefully on interest-rate adjustments on a meeting-by-meeting basis in 2026 since it will likely be difficult to grind sticky inflation from 30%s to 10%s rapidly, taking into account that inflation becomes stickier requiring high interest to remain for some time. Our average inflation forecasts stand at 26.5% and 20.2% for 2026 and 2027, respectively, due to deteriorated pricing behavior and stickiness of services inflation. We think upside surprises in food and energy prices and any accelerated TRY depreciation could derail recovery.
Our end year key rate prediction remains at 29.0% for 2026 while stubborn inflation will limit the size of the cuts. We feel Mth/Mth inflation readings will continue to be key as CBRT will want to avoid reigniting inflation with too aggressive rate normalization until CBRT fully contains the inflation.