BBVA Research keeps Turkey's year-end inflation forecast at 30%, eyes September rate cut possibility

BBVA Research has kept its year-end inflation forecast for Turkey at 30%, following the release of July inflation figures by the Turkish Statistical Institute (TÜİK).

The institution observed that monthly inflation rose to 1.78% in July from 0.99% in June, with food, energy, and services being key drivers. While seasonally adjusted inflation climbed to 2.2%, core inflation, excluding health, energy, and alcoholic beverages, remained largely flat at 2.1%.

The report highlighted that weak demand for essential goods supported disinflation, but service inflation continued to show strength. Despite a decrease in median inflation and its underlying trend, BBVA Research advised maintaining a cautious stance due to a lack of broad improvement in diffusion indicators and stable core inflation.

Looking ahead, BBVA Research expects delayed effects from fuel price adjustments and calendar-driven price increases to exert upward pressure on inflation in August and September. However, seasonal food price effects and weak domestic demand might partially offset this pressure. In its base scenario, assuming normalized energy prices and continued prudent policy in the second half of the year, BBVA Research anticipates the Central Bank of Turkey (TCMB) might begin a gradual reduction in its policy rate from September, with the effective funding cost reaching 36% by year-end.