The Central Bank has set its sights on low-income earners

The Central Bank announced its new inflation report during the week. Some financial market experts viewed the report positively, while others considered it neutral. However, in my view, the report as presented could turn into a nightmare for workers, civil servants, retirees, and farmers over the next two years…

The Central Bank, whose inflation forecasts have not materialized for nearly the last 15 years (perhaps even longer), has now set new inflation targets and forecasts for both the end of 2025 and the next two years. The Central Bank will no longer just make inflation forecasts; it will also set inflation targets. From what I gathered at the meeting, the target for inflation will be the low-income earners.

It is funny but true… The Central Bank maintained its 2025 inflation target, which it had previously set at 24 percent. However, stating that it would now announce both a target and a forecast, it also released its year-end 2025 inflation forecast. According to this, the year-end inflation forecast is between 25 and 29 percent…

I am writing this again. There is no mistake. For the end of 2025, the Central Bank has:

An inflation target of 24 percent…

An inflation forecast of between 25 and 29 percent…

Their lowest forecasts are above the target they set, but they do not care.

The same comedy applies to the year 2026.

The 2026 inflation target is 16 percent…

The inflation forecast for 2026 is between 13 and 19 percent…

Of course, with the experience of so many years, we will see that they will revise these 13-19 percent forecasts a few times during the year and push them up to 25 percent or perhaps even higher.

For 2027, the inflation target is 9 percent. For now, they have not made a forecast for 2027.

Now you might ask, what is the point of putting a forecast next to a target? Let me try to briefly summarize the Turkish translation of the hours-long Central Bank Inflation Report press conference and the subsequent Q&A session.

“Don’t stress too much. And don’t upset TÜİK (Turkish Statistical Institute) too much. We have changed our definition. Our advice to the government is this: whatever our inflation targets are, give raises to workers, retirees, farmers, and civil servants accordingly. The target inflation for 2026 is 16 percent… No matter what inflation turns out to be, give workers, retirees, farmers, and civil servants a 16 percent raise for 2026, and 9 percent for 2027. If inflation rises, our target will remain in place, but to avoid embarrassing ourselves in financial markets and upsetting the interest rate lobby, we will update our forecasts and policy rates. We will not leave the Turkish economy without foreign currency or the rentiers without profit, even at the cost of paying high interest rates. But you, as the government, must not give workers, retirees, or farmers the difference between the actual inflation and the target inflation. Otherwise, our disinflation program will be disrupted.”

If their upper forecast of 29 percent for the year-end holds, they will be very happy and declare themselves successful. Let’s assume 29 percent holds. The Central Bank policy rate expected by the markets for the year-end ranges between 29 and 32 percent. Let’s assume it will be 29 percent. This interest rate is a one-year rate for 2026. So, what is their one-year inflation target? 16 percent. They are giving rentiers a 13-point real interest rate spread. They are increasing the Treasury’s borrowing costs. They are not taxing the wealthy but borrowing from them. They collect taxes from the poor and transfer them to the rentiers. The ratio of the state’s interest payments to tax revenues is ballooning every year. Of the taxes collected;

13 percent in 2022

15 percent in 2023

17 percent in 2024

22 percent in the first seven months of 2025 went to interest payments.

If you ask what the solution is: Early elections are a must…