Central Bank expected to continue easing amid inflation data

ANKARA

Certain economists anticipate that the Turkish Central Bank will proceed with a rate cut this month, bolstered by the December inflation figures.

Türkiye's annual inflation rate dropped to 30.89 percent in December, down from 31.07 percent in November, official figures from the Turkish Statistical Institute (TÜİK) showed on Jan. 5.

Month-on-month, prices increased by 0.89 percent last month, slightly up from 0.87 percent in November 2025.

The Central Bank’s Monetary Policy Committee (MPC) is scheduled to convene on Jan. 22 to determine the key policy rate. At its previous meeting on Dec. 11, the MPC cut the one-week repo auction rate from 39.5 percent to 38 percent.

“The December data should encourage the Central Bank to continue its rate cuts this month by 150 basis points, but continuing inflation risks could keep the bank cautious with a lower 100 basis point cut, in our view,” said economists at ING in a note on the latest figures.

The exchange rate will likely remain supportive of disinflation, they said.

They highlighted that the minimum wage was raised by 27 percent, close to market expectations, citing a Central Bank study that indicated a 1 percent nominal increase in the minimum wage increases CPI inflation by 0.06-0.08 points in the first quarter and by 0.08-0.12 points over a one-year period.

“Based on these findings, the potential impact on consumer inflation is estimated to be between 2.2-3.2ppt,” ING economists said.

“We expect 2026 inflation at 22 percent, and risks are significantly on the upside,” they added.

Economists at BBVA also argued that the lower-than-expected December inflation and potential downside risks for January may create additional room for the Central Bank to continue rate cuts.

“Given the challenges to the disinflation outlook, we believe rate cuts should remain limited, but given the room December CPI provided, we expect the Central Bank to deliver a similar 150 basis point cut in January,” they said.