Inflation expectations for Turkey’s end-2025 rose to 30% from 28%, according to the central bank’s latest survey. Previously, these expectations had decreased to 28% in March.
Longer-term inflation expectations tend to be less volatile. The consensus forecast for USD/TRY at end-2025 is 43.6, a slight increase from previous estimates.
Shifting Inflation Outlook
The Istanbul cost of living index shows 50% inflation, while household inflation expectations remain around 60%. These trends suggest that considering rate cuts may be premature.
USD/TRY fell below 38.0 due to temporary factors. However, potential risks include a decline if rate cuts resume.
What’s being laid out here is a shift in the inflation outlook for Turkey, specifically stretching into the end of 2025. The central bank’s latest survey points towards a 2 percentage point rise, bumping long-term inflation expectations from 28% back up to 30%. That doesn’t seem massive at first glance, but it interrupts a trend of easing expectations that had earlier supported a more positive, forward-looking stance on price stability. It’s a reversal worth paying close attention to.
These longer-term forecasts don’t swing wildly from month to month; they serve more as anchors for strategy that extend well beyond immediate policy shifts. When they drift off course, it’s often an early caution flag for positioning across rate-sensitive exposures.
We also see a new consensus forming on the currency front: USD/TRY ending 2025 at 43.6, nudging upward from previous rounds. This figure aligns somewhat with the broader trend towards higher price pressures, and it adds weight to the idea that currency depreciation is expected to persist—but only slightly more than before. There isn’t a runaway panic in that forecast, but there is enough of a lean to suggest participants are bracing for an environment where inflation remains an embedded variable.
Household Inflation Expectations
Further pressure comes from the Istanbul cost of living index, which is now sitting at 50%. Perhaps more telling is that among households—those with actual purchasing behaviour—the inflation outlook holds stubbornly near 60%. When those expectations settle in, they shape wage negotiations, risk premiums, consumption patterns. It all begins to feed back into the main metrics that markets follow.
We’d interpret those sentiment levels as too high to support any talk of easing. If anything, discussion about pivoting away from tightening should be pushed further out. That message resonates with recent caution from authorities—and whether we agree with their tempo or not, the underlying data keeps removing room for manoeuvre.
The slight drop under 38.0 in USD/TRY drew interest, but context matters. It wasn’t driven by fundamental structural improvement. Instead, it appeared to stem from short-term factors—potentially energy flows, temporary capital placements, or perhaps even one-off interventions. Without firm tailwinds backing it, relying on this move continuing is risky.
The concern now is what follows if rate cuts pick up again. That could unlock a more sustained decline in the lira, dragging implied vols upward and reigniting short positioning strategies. For anyone still tracking forward curves or options pricing structures, that scenario would almost certainly show up in widening skews and shifting hedging preferences.
We’re watching for shifts in the tone of policymaker communication—particularly anything that hints at easing before year-end. If that surfaces against the backdrop of entrenched consumer expectations and stable-to-rising inflation data, it reopens vulnerabilities across TRY-linked derivatives. In that case, carry strategies might lose their appeal faster than expected, and protection costs would go higher.
Active calendars may need adjusting soon. Let implied breakevens guide recalibration, and don’t underestimate where inertia lies when sentiment sends early signals.
