Turkey’s central bank raised its end-2026 inflation forecast to 28 percent in its latest quarterly report, up from 26 percent in May, citing the ongoing Middle East war and a sharp increase in the oil price outlook as major drivers of the upward revision.
Presenting the third quarterly inflation report of 2026 on August 13, Governor Fatih Karahan said the authority had also lifted its average Brent crude oil price forecast for the year to 89 dollars per barrel, up significantly from the 60-dollar range cited in the February report. The revision reflects the sustained impact of the US-Iran conflict, which has disrupted shipping through the Strait of Hormuz and sent energy costs higher across the region.
The bank scrapped its forecast range entirely, replacing it with a single-point estimate of 28 percent, saying the war and high uncertainty environment made the traditional band approach less useful for communication. The interim target was set at 24 percent, while the official inflation target remains at 5 percent.
War Shock Reshapes Rate Path
Karahan told reporters that the decision to remove the forecast range reflected lessons from other central banks during periods of major supply shocks. The central bank had already raised the forecast from a 15-21 percent range in February to 26 percent in May, but accelerating energy costs pushed the new estimate higher still.
Despite the inflation upgrade, financial markets expect the central bank to continue cutting its benchmark rate, which currently stands at 28 percent. Analysts project further reductions of 100 to 150 basis points per meeting through the remainder of 2026, assuming the oil price stabilizes or declines as ceasefire talks progress.
The war and high uncertainty environment that we are currently experiencing are prompting the reconsideration of the communication of uncertainty around forecasts, along with the revisions in interim targets.
End-2026 Expectations Above 30 Percent
Even before the February 28 US-Israeli attack on Iran, private sector economists had expected inflation to finish 2026 above the 20 percent level. Since then, financial institutions’ forecasts have broken through the 30 percent threshold as oil prices surged and the lira came under pressure.
The revised forecast puts Turkey well above most emerging market peers on inflation, complicating the central bank’s efforts to maintain a dovish stance while keeping currency markets stable. The lira has remained under pressure, and any further escalation in the Middle East could force a reassessment of the rate-cutting cycle.
Sources: Central Bank of the Republic of Turkey; bne IntelliNews; Reuters; Asharq Al-Awsat
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