Turkish Lira: Market doubts disinflation and Lira stability – Commerzbank

Commerzbank’s Tatha Ghose notes that the Central Bank of the Republic of Türkiye's (CBRT) survey shows market participants revising inflation forecasts higher and expecting only gradual rate cuts from current effective levels. While respondents are slightly more optimistic on USD/TRY than Commerzbank for year-end, the convergence of one-year-ahead forecasts underscores limited confidence in sustained disinflation or a stable Lira.

Survey shows worsening inflation expectations

"Subsequent to us expressing skepticism regarding the inflation report forecasts and the outlook for the lira, the Turkish central bank’s (CBRT’s) own survey of market participants highlighted worsening expectations: market participants forecast inflation at 29.2% for year-end 2026 (CBRT: now revised 28%) and 23.7% for end-2027 (CBRT: 15%)."

"We describe the longer-term forecast as often passively mean reverting, in the absence of concrete information, not really a high conviction view about disinflation."

"As far as interest rates are concerned, participants see the repo rate staying at 37.0% for now, but declining to c.35% by year-end – which would imply 500bp easing from the current effective 40% rate."

"Respondents are more optimistic than us about USD/TRY for year-end (market: 51.66; us: 53.0), but the one-year ahead forecast has caught up with our own 56.0. In summary, the market does not have much confidence in the disinflation or stable exchange rate story."