Turkey’s benign underlying inflation supports December rate cut
At a Glance
Per the full note from ING, Turkey's central bank has raised its 2025 inflation forecast to 21% from 15%, but the desk argues that benign underlying inflation dynamics—captured by a multivariate trend indicator running 6ppt below annual inflation—support a 100bp cut at the December meeting. The CBT kept its 2024 target at 24% while lifting forecasts for 2026 and the 2027-2029 horizon, bringing them closer to market expectations (23% for next year, 29.5% for 2026 versus 29.6% consensus). The note frames the governor's emphasis on declining underlying inflation as a green light for continued easing, with supply-side pressures expected to subside and annual inflation converging toward the trend measure. With no internal coverage on TRY pairs and no high-impact Turkish events on the near-term calendar, the desk's view is a standalone directional call on the easing cycle, not a cross-firm consensus trade.
Key Takeaways
- 01ING forecasts a 100bp CBT rate cut in December, citing a 6ppt gap between the multivariate trend inflation indicator and annual inflation.
- 02The CBT raised its 2025 inflation forecast to 21% from 15% and its 2026 forecast to 29.5% from 28%, both closer to market consensus.
- 03The desk interprets the revised forecasts as a technical catch-up rather than a hawkish signal.
- 04No high-impact Turkish data is due in the next 30 days; the December meeting is the next catalyst.
Full Analysis
What the desk is arguing
The desk frames Turkey's inflation report as a dovish setup, with the central bank explicitly signalling that underlying inflation is improving even as headline forecasts rise. Per the full note from ING, the CBT's multivariate trend inflation indicator stands 6ppt below annual inflation, reflecting the impact of the tight monetary stance on demand, expectations and pricing behaviour. That gap is the analytical core of the argument: as supply-side pressures fade, annual inflation should converge toward the lower underlying measure, justifying further easing.
The supporting evidence is a mix of upgraded forecasts and unchanged targets. The bank kept this year's inflation target at 24% but raised next year's to 21% from 15% and 2026 to 29.5% from 28%, bringing both closer to market expectations of 23% and 29.6% respectively. ING reads these revisions as a technical catch-up rather than a hawkish shift, and explicitly forecasts a 100bp cut in December. The alternative read would be that the upward revision to the 2025 forecast reflects stickier inflation than the central bank admits, which would argue for a slower easing path—but the desk rejects that by anchoring on the 6ppt underlying-inflation gap.
How other firms see it
The note is a single-house view, so there is no cross-firm grouping to report on the TRY path. What matters for the broader FX complex is the read-through to other EM central banks navigating similar disinflation dynamics.
Watch the EUR/USD trajectory for spillover into EM carry trades, and keep an eye on USD/TRY as the market prices the December decision. The 6ppt underlying-vs-headline gap is the key indicator to track—if it narrows, the desk's 100bp cut call loses its anchor.
What the calendar says
No high-impact Turkish events are scheduled over the next 30 days, so the December central-bank meeting is the next hard catalyst. In the interim, the market will trade off the inflation report's forward guidance and any shift in the underlying trend indicator, with global risk sentiment and the USD/TRY spot level as the main swing factors.
Market Implications
Watch USD/TRY for the immediate reaction to the December decision, with the 6ppt underlying-inflation gap as the key signal. A narrowing of that gap would argue for a smaller cut and a firmer lira; a widening would validate the desk's 100bp call and likely pressure the currency.
From the original
Older quick take Quick take Published 13:43 Turkey Translate Turkey’s benign underlying inflation supports December rate cut Turkey’s central bank raised its inflation forecast for next year to 21% from 15% previously, bringing it closer to current market expectations of 23
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