Newsletters
Türkiye is on course to see a notable narrowing in the gap between its central bank’s policy rate and inflation by 2026, with the spread projected to fall to 500 basis points, according to Chinese lender ICBC's analysts, who base the forecast on a scenario of 23% inflation and a 28% interest rate.
The spread, widely viewed as a measure of real interest rate tightness, was around 660 basis points in October. Following a recent rate cut by the Central Bank of the Republic of Türkiye (CBRT), the differential widened slightly to 700 basis points.
However, ICBC analysts said they expect this to reverse in the coming months, assuming continued political stability.
The CBRT lowered its benchmark one-week repo rate by 150 basis points last week to 38%, marking the fourth consecutive cut. The move came after headline inflation data showed that monthly price growth eased to 0.87% in November, the lowest since mid-2023, bringing the annual rate to 31.07%.
The central bank’s latest survey of market participants, also released last week, indicated that price growth would likely remain moderate in December, with monthly inflation projected at around 1.16%. This would raise the year-end inflation rate slightly to 31.17%, keeping it broadly flat compared with November levels.
The ICBC Türkiye report noted that the interest rate-inflation spread stood at just 290 basis points at the start of 2025 before ballooning to 1,100 basis points in August, largely due to rapid inflation increases outpacing monetary tightening.
Looking ahead, analysts expect the CBRT to continue lowering rates at a moderate pace. Referring to the CBRT's survey, the bank said that a consensus was forming around a further 100 basis point cut at the first Monetary Policy Committee (MPC) meeting of 2026.
Inflation expectations for the next 12 months also moved slightly lower in December, declining from 23.49% to 23.35%, supporting projections for a lower rate gap in the medium term, the analysts noted.
1 min read
1 min read
