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Türkiye’s softer-than-expected inflation in December has created room for a 150 basis point cut in the central bank’s policy rate at its upcoming meeting in January, Spanish lender BBVA said in a report.
Consumer prices rose by 0.89% in December, well below forecasts of over 1.08%, bringing annual inflation down to 30.9% by the end of 2025.
Nevertheless, the rate remained above the Central Bank of the Republic of Türkiye’s (CBRT) revised year-end target of 24%.
BBVA attributed roughly 3 percentage points of the inflation overshoot to food price spikes and the market downturn in March.
"The lower-than-expected December figure and supportive early-year tax adjustments create room for a similar 150bps rate cut in January; however, the persistent stickiness in the inflation trend and expectations requires caution," BBVA Research said, emphasizing continued inertia in service inflation and limited improvement in core goods.
The Central Bank of the Republic of Türkiye (CBRT) is set to hold its first Monetary Policy Committee (MPC) meeting of 2026 on January 22, with expectations leaning toward continued monetary easing.
The CBRT’s December Survey of Market Participants had previously indicated a consensus forecast of a 100 basis point rate cut.
A 150 basis point cut would lower the policy rate to 36.5%, marking the fifth consecutive reduction since policymakers began the easing cycle in July 2025, down from 46%.
The report also highlighted that market expectations for 12-month-ahead inflation remain well above the Turkish central bank’s projection range of 16% to 19%, standing at 23.35% according to the December survey.
Looking ahead, BBVA Research noted that fiscal measures, including lower tax rates relative to producer prices on fuel, alcohol, and tobacco products in the first half of 2026, as well as planned adjustments in regulated prices, could help anchor inflation expectations.
However, it warned that these efforts may only partially offset the inflationary impact of the recent 27% increase in the minimum wage.
BBVA maintained its end-2026 inflation forecast at 25%, a figure above the market consensus, stating that it would continue monitoring revisions to the inflation index and the broader effectiveness of the policy mix in the months ahead.
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