According to Commerzbank analyst Tatha Ghose, Turkey's market-based inflation expectations for both 2026 and the next 12 months have increased, casting doubt on the Central Bank of the Republic of Türkiye's (CBRT) disinflation narrative and undermining confidence in the Turkish Lira (TRY) [1]. The CBRT's latest survey of market participants, published yesterday, showed the year-end 2026 Consumer Price Index (CPI) forecast rising to 29.2% year-over-year in July from 29.1% in June, continuing a steady upward trend since the start of the year [1]. The 12-month ahead inflation expectation also climbed to 23.95%, while the 24-month forecast softened to 17.8%, though Ghose notes this longer-term figure is less relevant to current market realities [1].
Ghose emphasizes that the rise in near-term inflation expectations is not solely attributable to recent geopolitical shocks, such as the Iran war, but reflects a broader market skepticism toward policymakers' claims of convincing disinflation progress [1]. He warns that new shocks—whether from oil prices, the lira itself, or domestic politics—are increasingly being incorporated into inflation expectations rather than dismissed as temporary [1].
On the monetary policy front, survey participants anticipate the CBRT will keep its policy rate unchanged at 37.0% at this week's meeting, before cutting it to 34.7% by year-end. Ghose argues this policy mix would be negative for the lira, especially if underlying monthly inflation remains close to 2% [1]. The same survey raised the end-2026 USD/TRY exchange rate forecast to 51.55, with Ghose cautioning that the actual outcome could be even higher [1].
CONCLUSION
Rising inflation expectations and anticipated rate cuts are eroding market confidence in the Turkish Lira, with analysts warning of further depreciation risks. The CBRT's current policy stance is seen as lira-negative, especially given persistent inflation momentum. Market participants remain skeptical about the effectiveness of disinflation efforts.