Republic of Türkiye

Since the 2024 Art. IV consultation, the authorities have aimed to balance disinflation with steady growth. Following a fiscal expansion in 2024, the deficit was reduced substantially in 2025 and, despite policy rate cuts, real interest rates remain high. Inflation (31 percent y/y in December) is falling slowly, and growth remains solid (4.0 percent y/y in 2025:Q1-Q3). With unchanged policies, including further rate cuts expected by markets, inflation is likely to continue to recede but remain in double digits and above the CBRT’s targets, and activity would fall short of its potential. Inflation would likely stay above targets and limit economic growth. Türkiye’s elevated inflation is also taking a toll on the financial sector and inequality, while productivity growth has been lackluster. Inflation risks remain on the upside, while a volatile external environment will require vigilance, particularly on FX risks. Delayed reanchoring of inflation expectations would also raise the probability of a shock that could reignite inflation and undermine confidence.