Turkey’s medium-term plan signals slower disinflation path in 2027
The desk interprets Turkey's newly published Medium-Term Plan as a signal of a slower-than-expected disinflation trajectory, with inflation projected to remain elevated into 2027. Per the full note from ing-think, the government forecasts year-end inflation to reach 28.4% in 2026, significantly above the prior target of 16%, which sets the stage for a challenging adjustment for the lira. This confluence of rising inflation and sustained domestic demand may pressure Turkey's currency in the near term, especially amid a wider current account deficit than previously anticipated.
What the desk is arguing
This analysis taps into a broader concern regarding the sustainability of Turkey's economic reforms, as flagged in the Medium-Term Plan presented by Vice President Yılmaz and Finance Minister Şimşek. A commitment to disinflation exists, yet forecasts indicate heightened inflation and increased public spending, which could undermine currency stability.
Notably, the increase in the year-end inflation forecast from the previous plan underscores significant changes in economic expectations. The government's acknowledgment of complications such as global geopolitical tensions and supply chain disruptions hints at a challenging environment for Turkish monetary policies going forward.
Where it sits in our coverage
The consensus in the market suggests a generally bearish outlook for the Turkish lira in light of these developments, with a target around 1.075 in the Mar-26 tenor. Specific targets include: - jpmorgan: 1.10 - bofa: 1.04 - goldmansachs: 1.12. This view reflects a divergence among institutions, particularly given the broader economic instability projected through 2027.
How other firms see it
Several firms align with the desk's cautious outlook, including jpmorgan and goldmansachs, who echo sentiments concerning inflationary pressures. Conversely, bofa presents a more optimistic stance, suggesting a more favorable dollar-lira exchange rate.
Key currency pairs to monitor include USD/TRY and EUR/TRY, given their sensitivity to Turkish fiscal policy and inflation dynamics impacting central bank decisions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Turkey's inflation forecast for year-end 2026 is set at 28.4%, above prior estimates.
- 02Increased domestic demand may exacerbate inflationary pressures, impacting currency stability.
- 03The current account deficit is projected to be wider, complicating future monetary strategies.
Market implications
Traders should focus on the USD/TRY levels around 1.075 as a significant psychological threshold. Additionally, with no immediate high-impact events in the calendar, market positioning will be key in response to evolving inflation data and fiscal responses from the Central Bank of Turkey.
Risks to this view
The main risk to this outlook would be a surprising shift in monetary policy from the Central Bank of Turkey that aggressively targets inflation more effectively, potentially stabilizing the lira. Moreover, significant geopolitical developments could alter the economic landscape dramatically, leading to unexpected currency strength.
Older quick take Quick take Published 08:24 Turkey Turkey’s medium-term plan signals slower disinflation path in 2027 Turkey's Medium-Term Plan for 2027-2029, which projects above-consensus growth led mainly by domestic demand, also sees higher inflation, increased primary spending, and a wider current account deficit than the previous plan for the next year Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Muhammet Mercan Chief Economist, Turkey At the weekend, Vice President Cevdet Yılmaz, Finance Minister Mehmet Şimşek, and Central Bank of Turkey Governor Fatih Karahan unveiled the Medium-Term Plan (MTP) for 2027-2029, setting out the government’s macroeconomic forecasts and key policy and reform priorities. The MTP expects the global economy to be shaped by geopolitical developments, supply security concerns, evolving trade and supply chains, artificial intelligence, elevated public debt, rising defence spending, demographic shifts, and climate-related pressures. According to the programme, these interconnected factors will continue to fuel uncertainty, weaken policy predictability, and increase the importance of economic stability, resilience, productivity, and technological transformation.
Against this backdrop, the government’s objectives include achieving balanced, sustainable, and inclusive growth, strengthening job creation, broadening prosperity across society, and supporting a fairer income distribution. Vice President Yılmaz emphasised that the programme seeks to reinforce macroeconomic stability, expand high value-added production, improve productivity, and enhance competitiveness through price stability, fiscal discipline, and financial stability. While reaffirming its commitment to disinflation, the government projects year-end inflation of 28.4% in 2026.
This forecast is above the 16% projection in the previous plan, close to the central bank’s 28% forecast, and slightly lower than the 29.4% expectation in the latest Market Participants Survey. During the presentation of the August Inflation Report release last month, Governor Karahan had stated that the Bank maintained its 2027 forecast in light of geopolitical risks and ongoing MTP preparations that could affect the macroeconomic framework. Accordingly, the MTP substantially revised its 2027 inflation forecast upward to 21%, compared with 9% in the previous plan.
The new projection is broadly in line with the 21.9% consensus in the Market Participants Survey. At this weekend's meeting, Karahan noted that the upward revision to the 2027 forecast was driven partly by the carry-over impact of higher-than-expected inflation this year on the following year’s starting point, and partly by the global economic backdrop. According to CBT calculations, the impact of the US-Iran war and related global developments on 2026 inflation is estimated at around 7ppt.
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