Commerzbank reviewed the outlook for the Turkish lira ahead of the Central Bank of Turkey (CBT) key rate decision on Wednesday. It referred to the CBT survey showing year-end 2026 inflation expectations rising to nearly 28% y/y from 25% y/y in March.
The report said the rise in expectations was linked to the Iran war, and that expectations had been increasing for months before that. It also noted that CBT reserves have fallen due to intervention to support the lira and other short-term measures.
It reported that CBT Governor Fatih Karahan and Finance Minister Mehmet Simsek met market participants during the IMF conference. Attendees said their remarks suggested hesitation about raising rates.
Commerzbank expects a monetary tightening step on Wednesday. It said that if tighter policy does not happen, USD/TRY could move higher as markets reprice lira risk.
The CBT survey showed the year-end USD/TRY forecast rising to 51.23 from 50.97 in April. The 12-month forward expectation rose to 53.62 from 52.70, while Commerzbank’s forecast is 55.00.
We’ve seen the Turkish central bank hesitate, just as was feared in the run-up to their recent decision. This lack of a significant rate hike has triggered the predicted Lira sell-off. The USD/TRY has now broken through the 53.00 level, reflecting a sharp repricing of risk in the market.
This move is fueled by stubborn inflation, with the latest figures for March 2026 unexpectedly rising to 35%, making year-end expectations of 28% look optimistic. With net foreign reserves recently reported to have dipped below $15 billion, the central bank has very little firepower to defend the currency through intervention. The market now sees rate hikes as the only credible tool left.
For derivative traders, this environment points to a sustained period of high implied volatility in the Lira. We are seeing a significant demand for USD/TRY call options, with strike prices around 55.00 and even 58.00 for later in the year gaining traction. This suggests the market is positioning for further weakness, not a reversal.
This policy hesitation feels very familiar, reminding us of the unstable periods we navigated through in 2025 when ad hoc measures were preferred over decisive monetary policy. Historical precedent shows that when the central bank falls behind the inflation curve, currency depreciation can accelerate rapidly. This pattern suggests that waiting for a political shift before acting may come too late.
