Turkey’s central bank has sharply revised its inflation forecasts, acknowledging mounting economic risks amid the war surrounding Iran and growing strain on the country’s economic stabilization program.
On Thursday, May 14, the regulator raised its 2026 inflation forecast from 16 percent to 24 percent and nearly doubled its estimate for the following year to 15 percent. At the same time, the central bank abandoned its traditional forecast range, citing “heightened uncertainty.”
Turkey imports nearly three-quarters of its energy needs, leaving the country particularly exposed to fallout from the energy-market disruptions caused by the conflict surrounding Iran.
According to central bank surveys, Turkish households expect prices to rise by 52 percent this year, while businesses anticipate inflation of 33 percent. International financial institutions, including JPMorgan and Deutsche Bank, forecast inflation of around 30 percent even in 2026.
The revision comes against the backdrop of Turkey’s deteriorating trade balance. That trend began even before the U.S.-Israeli war with Iran. Exporters have also increasingly complained that the lira’s excessive strength is undermining their competitiveness.
Turkey Inflation, Annual Trend, %
Additional pressure has come from a decline in foreign currency reserves. In March, Turkey lost a record $43 billion in reserves amid a broader selloff in emerging-market assets.
Central Bank Governor Fatih Karahan said the regulator does not currently plan to alter its monetary policy stance. The benchmark interest rate remains at 37 percent.
“We believe the current stance remains justified as long as uncertainty persists,” Karahan said. “As for the future—all options remain on the table.”
He also signaled that the regulator intends to maintain its current approach to the exchange rate, allowing the lira to strengthen in real terms. The central bank continues to keep the pace of currency depreciation below inflation levels in an effort to restrain price growth and maintain foreign investor interest.
Economists welcomed the abandonment of earlier forecasts, viewing it as an overdue recognition of reality, but criticized authorities for failing to adopt tougher measures.
“It is impossible to sharply raise inflation targets and forecasts without negatively affecting expectations,” RBC BlueBay senior strategist Timothy Ash said. According to him, the situation points toward a need for tighter policy.
Some analysts also question the sustainability of Turkey’s current economic model. The current account deficit is expanding faster than foreign demand for lira-denominated assets, potentially creating a financing gap.
“Turkey is beginning to send troubling signals,” said Brad Setser, senior fellow at the Council on Foreign Relations and former U.S. Treasury official. According to him, a widening current account deficit cannot be financed solely through direct investment and demand for Turkish bonds.
According to Goldman Sachs estimates, Turkey’s current account deficit reached $24 billion in the first quarter—nearly 4 percent of GDP. A year earlier, the figure stood at $14 billion.
Karahan also said the country’s foreign currency reserves partially recovered in April. According to central bank data, gross reserves excluding gold now stand at $172 billion, while net reserves excluding currency swaps reached $39 billion as of May 8.