Turkish inflation cooled to 2.96% on a monthly basis in February while the annual figure rose to 31.53%, largely as expected, according to official data on Tuesday that tees up a tough rate decision for the central bank next week.
Beyond the price pressure, market turmoil due to war between US-Israel and neighboring Iran prompted emergency measures by the central bank, including some $8 billion in FX sales on Monday, resulting in a roughly 300 basis-point rise in the overnight rate to about 40%.
Analysts say the central bank could respond by officially halting an easing cycle that began in late 2024. In January, the monetary policy committee trimmed the bank's main policy interest repo rate by 100 basis points to 37%.
In January, monthly consumer price inflation surged to a higher-than-expected 4.84% while the annual rate slipped to 30.65%.
In February, monthly inflation was driven by a 6.89% surge in food and drinks prices, according to the Turkish Statistical Institute, marking the second month of pressure that has raised worries about a disinflation trend that began in 2024 but recently slowed.
Finance Minister Mehmet Simsek said he expected the recent high food price increases to be offset in the coming period, depending on weather conditions, while acknowledging the energy price rises triggered by the Iran conflict.
"We are working to limit the inflationary impact of rising oil prices due to geopolitical developments," he said, adding that all policy tools are being used in coordination to sustain the disinflation process.
In a Reuters poll, monthly inflation was forecast to be 3% with the annual rate seen at 31.55%.
The data also showed the domestic producer price index rose 2.43% month-on-month in February for an annual increase of 27.56%.
The central bank has in recent weeks kept rate-cut expectations on track even as it has repeated it was ready to tighten policy if needed.
JPMorgan - which like most analysts had previously predicted another cut at the central bank's March 12 policy meeting - said on Monday it now expects the bank to hold rates. It also revised its year-end inflation forecast to 25% from 24%.
Last month, the central bank nudged up its year-end inflation forecast range by two percentage points to 15–21% and maintained its interim 16% target, despite market doubts over whether the downward trend seen throughout 2025 is on track.
