A survey by CBT shows that market participants expect inflation to reach about 23.2% by the end of 2026, down slightly from 23.4% last month. This indicates a small easing in inflation expectations, even as current rates seem to be stabilizing around 23%.

Unreliable Long Term Forecasts

Long-term inflation forecasts, such as those for 24 months ahead, are often seen as unreliable. These predictions tend to align with the central bank’s target, which is rarely achieved. The 23% forecast is considered an ‘active’ prediction, signifying that current monthly price increases are not on track with CBT’s medium-term goals. Despite high interest rates, prices continue to rise. While reducing inflation from the COVID-induced peaks was manageable, reaching consistent goals remains tough. The survey suggests there may be a 150 basis point rate cut this month and another one in March. At the same time, the USD/TRY exchange rate is gradually increasing, showing ongoing market adjustments. The latest survey indicates that market participants anticipate inflation to be around 23.2% by the end of this year. However, year-over-year inflation reached a stubborn 29.5% in December 2025. This suggests expectations are stabilizing at levels significantly above the central bank’s targets. We highlighted this issue throughout 2025. While it was one challenge to reduce inflation from its peak above 70%, getting it to single digits is proving more difficult. Monthly price hikes remain significant, threatening the progress made by last year’s interest rate increases. This indicates the battle against inflation is ongoing.

Market Tensions and Strategies

Despite these challenges, the market now expects a 150 basis point rate cut this month and another cut in March. This creates a tension between persistent inflation and the central bank’s potential policy shift toward easing. For traders, this signals possible currency weakness in the future. Consequently, the USD/TRY exchange rate continues to climb, recently surpassing 35.80. With expectations of rate cuts amid high inflation, traders might want to prepare for further depreciation of the lira. Considering USD/TRY call options could be a wise strategy to take advantage of this expected move upward. Implied volatility on USD/TRY options is likely to remain high, reflecting significant market uncertainty. This makes options more costly but also a useful tool for managing risk in a potentially volatile situation. Forwards can also be employed to secure a better future exchange rate. Create your live VT Markets account and start trading now.

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