TEPAV Issues Strong Warning to Central Bank: Inflation Targets Deviating

The Turkish Economy Policy Research Foundation (TEPAV) has issued a stark warning to the Central Bank of the Republic of Turkey (TCMB), indicating that inflation is on a trajectory to surpass both government targets and the bank's own projections for 2026. This assessment, detailed in TEPAV's Monetary Policy Assessment Note, underscores the persistent challenges in taming price increases within the current economic climate.

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In the current economic conditions, inflation is expected to occur above both the targets and the Turkish Republic Central Bank's (TCMB) forecasts.

TEPAV identifies a critical issue: the lack of anchored inflation expectations and the stubbornness of pricing behaviors. This inertia, coupled with a mix of global economic fluctuations and domestic uncertainties, continues to exert pressure on macroeconomic stability. The foundation stresses that without addressing these fundamental issues, the battle against inflation will remain an uphill struggle, impacting the daily lives and purchasing power of Turkish citizens.

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Inflationary inertia continues due to inflation expectations not being sufficiently anchored and the rigidity of pricing behaviors.

Beyond identifying the problems, TEPAV also provides clear recommendations. The report reminds the TCMB of its legal obligations under Article 42 of the Central Bank Law, which mandates public disclosure of reasons for deviations from targets and the measures to be taken. Crucially, TEPAV argues that monetary policy alone is insufficient. For sustainable success in combating inflation, it advocates for a coordinated approach that integrates fiscal policy and comprehensive structural reforms. Such a unified strategy, widely supported, is deemed essential to achieve lasting economic stability.

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Programs not supported by fiscal policy and structural reforms will remain limited in combating inflation.

Specifically, TEPAV recommends a hike in the policy rate from the current 37% to 40%, maintaining it at that level. Additionally, it suggests raising the upper band of the interest rate corridor to 43%. These proposed adjustments signal a call for a more aggressive monetary stance, but one that must be part of a broader economic reform agenda. As a Turkish economic think tank, TEPAV's analysis and recommendations carry significant weight, reflecting a deep concern for the nation's economic health and a desire for pragmatic solutions.

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The policy rate should be increased from the current 37 percent to 40 percent and maintained at this level.