Citi sees Turkey central bank holding rates on inflation concerns

Citi expects Turkey’s central bank to keep interest rates unchanged in September as inflation expectations rise despite weakening economic growth.

The Central Bank of Turkey’s survey shows GDP growth expectations fell to 3.1% in August, down from 3.84% in March, marking the fifth consecutive monthly decline. Weaker domestic demand has not yet produced meaningful disinflation in the economy.

Twelve-month inflation expectations rose 159 basis points from their February low to 23.69%. The 24-month inflation measure exceeded 18% for the first time since January 2025, indicating the inflation anchor is being tested.

The alignment of funding with the 37% one-week repo rate represents an easing of the policy stance, leaving the exchange rate to carry the disinflation burden. The challenging global environment adds to domestic pressures facing policymakers.

Citi sees limited scope for rate cuts in the second half of 2026 and expects the policy rate to end the year at 35%, down from current levels.