WOOD Flash – Türkiye macro: February inflation performs better than the CBT’s projections

Türkiye’s annual inflation rate fell to 39.05% in February, down from 42.12% in January, undershooting the market’s expectations of 39.90%. On a monthly basis, inflation eased significantly, to 2.27%, from 5.03% in January – again, coming in better than the consensus estimate of 2.85%. Core inflation also surprised to the downside. Following the data release, the Turkish Lira stabilised in the mid-36.5 range, while banking stocks rallied, as the report reinforced the optimism over inflation trends (but with some caveats) and provided further evidence that Simsek’s economic programme is yielding results. This improvement comes ahead of a widely anticipated interest rate cut by the Central Bank, which now appears likely to be 250bps, in line with previous reductions. In our view, this remains the main case, despite Central Bank Governor Karahan’s recent statements, which cautioned that rate cuts are not automatic and can be paused, if inflation risks persist. We have also taken the opportunity to rerun our inflation model for Türkiye, which now forecasts annual inflation at 34.7% for 2025E, with an end-of-period figure slightly below the 30% mark –a significant improvement compared to just a few months ago. This compares to a consensus projection of 26.3% yoy in 4Q25E and a Central Bank median estimate of 24%. This trend suggests that Türkiye could cut rates more aggressively than our current projection of 38.0% this year, while still maintaining positive real interest rates, potentially lowering the policy rate to 33%.