Türkiye | Higher uncertainty on inflation outlook

Summary

Consumer inflation rose by 2.46% m/m, lower than both our expectation (3%) and the market consensus (2.9%), driving annual inflation down to 38.1%. We have revised our 2025 year-end inflation forecast to 32% from 29% on the expected pass-through from the recent currency depreciation.

Key points

• Key points:
• We calculate the seasonal adjusted monthly inflation as 2.61% (up from 2.33% in February), which leads the three-month-average trend to accelerate to 2.8% in March (vs. 2.6% prev.). Underlying inflation trend as an average of six indices followed by the CBRT, displayed slight improvement with 2.38%.
• Seasonally adjusted monthly inflation increased on food and basic goods inflation, whereas a broad-based correction in services (excluding other services) and weakness in energy prices were supportive factors. The impact of exchange rate depreciation observed toward the end of March may become more apparent in April and May inflation figures.
• Persistently high inflation expectations, strong underlying inflation inertia, an output gap that remains close to neutral level, delayed fiscal support, and the lagged impacts of recent currency depreciation create upside risks to disinflation path.
• Considering around 2–3 percentage points upward inflationary impact of the recent exchange rate depreciation, we have revised our 2025 year-end inflation forecast to 32% from 29% under the assumption of real currency appreciation, energy price hikes in line with inflation target, no additional minimum wage adjustment and slightly tighter monetary policy than our previous expectation.
• We expect the Central Bank to keep the policy rate unchanged in April MPC Meeting, starting more gradual rate cuts from June onwards if the recent shock would be temporary, with the policy rate potentially falling to 35% by year-end.

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