Bloomberg economist Baziki: The Central Bank's 21% inflation forecast for 2027 is low

Bloomberg Turkey and Sweden Economist Selva Baziki, who finds the Central Bank's year-end 2027 inflation forecast of 21% low, announced her own expectation as 24%. Baziki assessed the Central Bank's latest Inflation Report and the effects of the fund crisis on the economy on the Mesele Ekonomi broadcast.

In its latest Inflation Report, the Central Bank had raised its 2026 year-end inflation forecast to 29.5% and its 2027 year-end forecast to 21%. Baziki said the 2026 forecast largely overlapped with her own expectations: "We had put a figure just below 30 for the end of this year," she said, and noted that the Central Bank, in full alignment with expectations, had revised its forecast to 29.5, but that this still remained below her own 29.8 expectation.

Stating that the real divergence emerges in 2027, Baziki said, "We do not agree with the Central Bank at the 21 point; it is again showing us an optimistic perspective." She explained that they find the Central Bank's 21% forecast low and that their own expectation is around 24%. She said they assess the risks regarding the exchange rate, oil prices and the course of the war in the Middle East as higher than the Central Bank does.

Saying that the slowdown in economic growth will be decisive for interest rate decisions, Baziki stated that both domestic demand and external demand for Turkish goods are weakening. She said the fund crisis has an effect on economic activity, but that the tightening monetary policy implemented for a longer period lies at the root of the slowdown. Baziki said that "the Central Bank will continue to cut interest rates" and, putting both on the scale, said they drew the message that the Central Bank will continue to cut rates but that this will of course happen with reasonable steps, and she forecast that the cuts could accelerate in the period ahead due to the weakness in growth.

On when inflation in Turkey could fall to single digits, Baziki said, "The Central Bank's 5% target is at a point later than 2031," and said that unfortunately single digits are not within her own projections through 2031. She explained that the high-rate interest hikes made in the past did not create tightening of the same magnitude in real terms, and that as a result the economy has entered a period in which it grows more slowly for longer. She noted that the models give healthier results especially for the next six quarters, and that the reliability of longer-term forecasts decreases.

Noting that after the fund crisis companies and households experienced a squeeze in cash flow, Baziki said that those who spend relying on investment income and those who use credit are struggling: "they cannot make this payment right now," she said. She stated that a company or household expecting to receive a certain return from its investment in the equity market and to use that return for a certain expenditure or to pay the credit of an expenditure it made in the past cannot make this payment right now. She stressed that the crisis's effect on consumption is not limited to today's spending, and that those who will use their savings for a large expenditure in the future are also affected.

Touching on the steps taken by the economic management, Baziki explained that they built a recovery scenario based on repayments being spread over a period of about six months. She said the increase in non-performing loans is not surprising, and assessed the Central Bank's expansion of credit growth limits as a step aimed at companies and individuals whose cash flow has been squeezed. Stating that they calculated the possible effect of the value losses in the fund market on national income, she said, "In our calculation based on the market cap erosion, we do not see its effect on national output as very high." Saying that the crisis could affect inflation downward but that the effect they calculated is not large enough to change the Central Bank's interest rate decisions, Baziki added that this assessment depends on confidence being restored in the markets.