Turkey Rates and the CBRT: Lira, Reserves, Inflation — 2026-09-08

Top developments

Government Raises Year-End Inflation Forecast to 28.4%

In a significant policy update, Vice President Cevdet Yılmaz announced that Turkey has revised its year-end inflation forecast upward to 28.4% as part of the newly released Medium-Term Program (MTP) for 2027-2029. The government cited rising energy costs and geopolitical shocks as primary drivers for the adjustment, acknowledging a "partial failure" in containing price rises faster than previously projected. This move aligns official targets more closely with market expectations, signaling a realistic approach to disinflation while maintaining that price stability remains the top priority for sustainable growth.

Analysts Split on CBRT’s September 10 Rate Decision

With the CBRT Monetary Policy Committee (MPC) meeting scheduled for September 10, foreign institutional views have diverged. According to Dünya Gazetesi, three major institutions expect the central bank to hold the policy rate at 37%, citing stubborn inflation and global yield pressures. However, one bank argues that the disinflation trend may allow for the resumption of the easing cycle in September. This divergence underscores the delicate balance the CBRT faces between supporting growth and anchoring inflation expectations.

Reserves Drop $4.4 Billion in Latest Weekly Data

The CBRT reported a decline in total reserves of approximately $4.4 billion in the week ending September 4, bringing total reserves to $183.8 billion. This drop follows a period of relative stability and reflects continued interventions to smooth lira volatility and meet foreign currency demand. While swap-excluded net reserves remained relatively stable compared to the previous week, the overall erosion of gross reserves highlights the persistent pressure on Turkey’s external position as the country navigates high global interest rates.

New MTP Prioritizes Liraization and Ends KKM Era

The 2027-2029 financial program explicitly states that the era of the FX-protected deposit scheme (KKM) will be completely closed. The administration aims to increase the share of Turkish lira deposits by making them more attractive and extending their maturities. This structural shift is designed to reduce the vulnerability of the banking system to currency fluctuations and support the CBRT’s orthodox monetary policy stance by deepening local currency liquidity.

Local view

Local economic commentators are focusing heavily on the upcoming September 10 MPC meeting. Zeynel Balcı, research director at Meksa Yatırım, noted in Hürriyet that market expectations lean towards a hold on rates, given that September inflation is expected to rise due to seasonal factors and school-related costs. Meanwhile, Doç. Dr. Gökhan Işıl argued in EKOTÜRK that keeping rates steady in September does not signal an abandonment of the easing cycle, but rather a prudent pause to assess incoming data. BBC Türkçe’s coverage highlights Professor Selva Demiralp’s critique that the new MTP represents a "painful prescription" that avoids touching growth targets significantly, potentially risking credibility if inflation remains sticky.

Context & numbers

• Policy Rate: Currently at 37.00%. The next decision is due September 10, 2026.
• Inflation Forecast: Official year-end 2026 forecast raised to 28.4% in the new MTP.
• Reserves: Total reserves stood at $183.8 billion as of September 4, down $4.4 billion week-on-week.
• Growth Outlook: The MTP trims the 2027 growth forecast to 4.2%, citing tighter financial conditions and energy costs.
• Lira Trend: The USD/TRY pair continues its managed depreciation trend, with analysts noting persistent pressure from current account deficits and global dollar strength.

On the radar

• September 10 MPC Decision: The immediate focus is on whether the CBRT holds at 37% or cuts. A hold is seen as likely by most, but a surprise cut could weaken the lira further.
• September Inflation Print: Scheduled for early October, this data point will be crucial for Q4 policy decisions, with expectations of a monthly uptick due to seasonal factors.
• Global Bond Yields: Rising US Treasury yields continue to exert pressure on emerging market currencies, including the lira, limiting the CBRT’s room for aggressive easing.