Türkiye’s inflation is expected to continue falling further to 23% at the end of 2025 and 18% in 2026, Fitch Ratings senior director Erich Arispe Morales told Anadolu.
Fitch upgraded Türkiye’s credit rating from B+ to BB- with a stable outlook in September 2024, and affirmed the rating and the stable outlook at the end of January this year.
Morales stated that Türkiye’s current account deficit is declining and its international reserves are stronger.
He highlighted that the ongoing decrease in foreign exchange-protected deposits and the year-end inflation of 44.4% in 2024 are in line with the revised targets of Türkiye’s Central Bank (TCMB) and Fitch’s previous expectations in September.
Morales mentioned that a high level of inflation still remains the “main policy challenge,” as Türkiye’s inflation is higher than other countries with a BB- rating.
“We estimate a policy rate of 28% in 2025, falling to 21% by 2026,” he said.
“This reflects the commitment to maintaining a tight monetary policy stance, even during the easing cycle. It’s also important to note that broader financing and monetary conditions are supported by macroprudential tools, which the central bank is expected to fine-tune to ensure consistency with disinflation,” he added.
Morales said that Fitch will monitor the extent of the agency’s expectations of improved policy consistency will be met.
“We also saw a moderate minimum wage increase for this year, which aligns with the central bank’s inflation reduction efforts,” he said, noting that the Turkish Ministry of Finance is committed to lessening the fiscal deficit.
“The key question is whether these policies will align to reduce inflation—it’s a combination of external improvements and the expectation of consistent policy execution,” he said.
Morales mentioned that the Turkish Central Bank will maintain its tight monetary policy despite the easing cycle.
He highlighted that inflation cannot be reduced by policy alone but “all policies must be aligned” for that goal.
“There’s also the commitment to reduce the fiscal deficit from 4.8% of GDP to closer to 3%, which will support the disinflation process. Our expectation is that these policies will help to reduce inflation,” he said.
“Given Türkiye’s challenges, we need to increase our confidence that inflation will gradually approach the level similar to peer countries (and) this improvement could positively impact our assessment of Türkiye’s creditworthiness,” he added.
Morales stated that the strengthening of international reserves was “surprising, especially in terms of both levels and composition,” though further strengthening is needed.
“Our focus will be on two main areas: the disinflation process and the alignment of monetary, fiscal, and income policies to ensure consistent inflation control. It’s also about reducing the large inflation gap with rating peers,” he said.
He mentioned that portfolio investments to Türkiye are expected to rise as the Central Bank maintains the current policies, though foreign direct investment (FDI) is “trickier.”
“While the macro environment plays a role, broader factors like institutional concerns also influence decisions. FDI is a long-term commitment, and it may take time for investors to feel confident,” he noted.
He underlined that reducing inflation will be significant in “regaining investment-grade” and that it will be a gradual process.
“Delivering consistent macroeconomic stability, regardless of political or economic cycles, is a key consideration to eventually achieving an investment-grade rating (and) strong policies and institutional strength will be critical,” he added.