The Turkish central bank revised its inflation forecasts upward on Thursday, setting a 2026 year-end forecast of 29.5% and a 21% forecast for next year, citing effects related to the war in Iran and broader geopolitical tensions.

“Supply-side shocks caused by geopolitical developments are limiting the decline in headline inflation. The continuation of this situation keeps upside risks to the inflation outlook alive and calls for a cautious policy stance,” Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan told a news conference while presenting the year’s final inflation report.

“We have revised our year-end 2026 inflation forecast upward to 29.5%,” he said.

He also said that the bank projects inflation to decline to the interim targets of 21% at end-2027, 13.5% at end-2028 and 9% at end of 2029.

Thus, the bank’s year-end inflation projections for 2027 and 2028 were revised upwards by 6 percentage points to 21% and 4.5 percentage points to 13.5%.

The forecast for 2029 remained unchanged at 9%, while the bank maintained its medium-term target of stabilizing inflation at 5%.

Karahan said higher oil prices, driven by rising regional tensions and fading expectations for a normalization of energy shipments through the Strait of Hormuz, had contributed to the upward revision.

“Geopolitical developments continue to be the leading risk factor in terms of further increases in oil prices and the persistence of high price levels,” he said.

Türkiye’s annual inflation rate stood at 29.77% in October, according to official data.

Inflation slightly picked up from a near five-year low of 29.73% in September, while monthly consumer prices rose 2.58%, accelerating from 1.84% in September.

Slowdown in disinflation process

Talking about the global and domestic macroeconomic outlook, Karahan flagged a slowdown in the disinflation process.

“In addition to the elevated levels of food inflation in the first months of the year, supply-side pressures stemming from the geopolitical developments at the end of February led to a deceleration in the disinflation process,” he said.

He also mentioned that deceleration in services inflation continues despite supply shocks, but pointed out that this diverges among subgroups, citing, for example, a higher-than-expected increase in the communications group and the increase in transport due to energy prices. Karahan also said that “disinflation continues in rents and other services.”

However, he also said that fresh fruits and vegetables prices cause fluctuations in food inflation.

“While inflation in fruits remains moderate owing to favorable crop production conditions, inflation in vegetables diverges from this course,” he said.

“Leading indicators suggest that the rise in vegetable prices continues in November as well,” he added.

Moreover, while raising overall forecasts for inflation, he said that the bank revised its assumptions for oil prices upwards for 2026 and 2027.

“The rise in natural gas prices has been more pronounced than that of oil prices. Disruptions in energy supply, rising refinery margins, and increasing transport costs also put upward pressure on import prices. Accordingly, we have revised our import price assumptions upwards for both years,” he also said.

The governor also said that the uncertainty concerning the economic outlook remains elevated “due to geopolitical developments, volatility in financial markets and commodity prices.”

In addition to the impact of energy and food price developments, Karahan also said that “supply shocks pose risks in terms of inflation expectations and pricing behavior.”

As for food prices, he said that the impact of the war and adverse weather conditions on international agricultural commodity and agricultural input prices remains significant.

“Moreover, price adjustments in administered items may also heighten such risks,” he said.

He also said that monetary policy is not being adjusted “based on one-month data” and noted that the bank remains attentive to the risks.

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The Asian Infrastructure Investment Bank (AIIB) reached a record $1.6 billion financing ⁠deal with COP31 climate conference host ⁠Türkiye to support a series of policy reforms aimed at attracting the investment it needs to hit its climate goals, the bank ​said.

Türkiye, a founding member of the AIIB, will ​need ⁠an estimated $68 billion in additional climate investment by 2030, around half from private sources, the bank said in a statement on Thursday, the fourth day of the two-week U.N. climate conference being held in Antalya.

Covering fiscal policy, financial regulation and sectoral planning, the agreement will support the implementation of Türkiye’s Climate Law and its plan to cut planet-warming emissions, which includes an interim target for 2035 and aims to achieve net zero by 2053.

The money will help scale sustainable finance, accelerate decarbonization and boost climate resilience efforts across ⁠the country ⁠of 86 million people as global warming drives drought, floods and wildfires.

“This financing represents AIIB’s largest climate policy-based financing package to date, and we look forward to contributing to Türkiye delivering on its climate ambitions,” said AIIB Chief Investment Officer Konstantin Limitovskiy.

Total AIIB climate financing in 2025 was a record $7.47 billion.

Help for Türkiye’s nascent trading scheme

Part of the sustainable finance support will go towards helping the country scale its nascent emissions trading ⁠scheme, under which companies in high-emitting sectors will receive and trade allowances.

A domestic carbon price could help exporters to the European Union in sectors such as steel and cement, as ​carbon costs paid in Türkiye can be taken into account under the bloc’s ​carbon border levy on emissions embedded in certain imported products.

Program targets include getting at least 180 facilities reporting baseline emissions under the ⁠scheme by ‌April ‌2027 and securing production licences for 1,800 megawatts (MW) of wind ⁠and solar capacity by early 2027.

The plan ‌also aims to help 225,000 farmers in water-stressed basins switch to less water-intensive crops by ​2028 and to have 50,000 hectares (124,000 ⁠acres) designated as carbon sinks – where land absorbs climate-damaging ⁠carbon – by 2028.

As the country faces increasing pressure from water scarcity, drought, ⁠extreme heat, wildfires ​and urban flooding, the reform plan aims to help strengthen planning and risk management in areas including water, ecosystems and health.

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State-owned Turkish Petroleum Corporation (TPAO) has signed a cooperation agreement with U.S. energy services firm Baker Hughes to develop Türkiye’s geothermal energy potential, Energy and Minister Alparslan Bayraktar said Wednesday.

The deal was signed on the ⁠sidelines of the COP31 climate summit in the southern city of Antalya after Bayraktar met Baker Hughes CEO Lorenzo Simonelli, the minister said on the social media platform X.

Bayraktar did not provide any financial details.

The potential across Türkiye will be assessed ⁠using data held by TPAO and the country’s General Directorate of Mineral Research and Exploration (MTA), he said.

They will then explore ⁠opportunities for commercial-scale development at suitable well locations, he added.

Bayraktar said he hoped ⁠the step would make a strong contribution to Türkiye’s goals of ⁠diversifying its energy resources and further strengthening its energy supply security.

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Fresh evidence of stubbornly high U.S. inflation this week was unwelcome news for the Federal Reserve, not to mention consumers, raising concerns that price pressures are spreading beyond the one-off effects of tariffs and high gasoline prices into the broader economy. That could mean mortgages, credit cards and other forms of borrowing are likely to become increasingly expensive.

Tuesday’s consumer price index report showed broadly rising costs across a range of goods and services, some with little connection to more expensive oil and gas or surging investment in artificial intelligence data centers, another factor blamed for worsening inflation. And there is increasing anxiety among Fed officials that higher oil prices stemming from the Iran war may last longer than previously thought.

A key issue debated by Fed policymakers for months has been whether inflation would cool on its own if the Iran war ended and oil prices fell and as the impact of tariffs faded. But government data suggested inflation rose to 4% in October compared with a year ago, up from 3.7% in September, even as gas prices leveled off.

The potential consequences of the new inflation data emerged immediately. Two Fed officials suggested Tuesday that the central bank may have to hike its key interest rate more quickly to tame inflation. Bigger or faster hikes by the Fed would mean that buying a house or a car, or paying off a credit card would become a steeper hill to climb, with millions of Americans already struggling to make ends meet.

Lorie Logan, president of the Federal Reserve Bank of Dallas and a voting member of the Fed’s rate-setting committee, said Tuesday that price increases remain high for services such as “visits to the doctor, childcare, dining out and hotel stays.”

“Prices for these services aren’t particularly sensitive to tariffs, conflict in the Middle East or surging demand for computer chips,” she added. “While I expect inflation to moderate as price pressures dissipate in energy and manufactured goods, the broader inflationary trend is more likely to persist.”

Logan said Tuesday she supported two additional quarter-point rate hikes. While she has made similar statements before, Logan added that the Fed could “move more rapidly this winter” than it “has moved so far this fall,” signaling that she may support two rate hikes in a row, a quicker pace than the Fed’s current approach.

At its last meeting in late October, the central bank kept rates unchanged at about 3.9%. Chairman Kevin Warsh declined to suggest whether more increases were likely. The central bank hiked rates at its September meeting.

Wall Street investors now see 90% odds that the Fed will lift borrowing costs at its next meeting Dec. 8-9, according to futures prices tracked by CME Fedwatch. Expectations for a second hike at its January meeting tripled between Monday and Tuesday, to more than 64%.

Some Fed officials had expressed optimism over the summer that once the shocks from tariffs and high gas prices faded, inflation would retreat without Fed intervention.

But Anna Paulson, president of the Philadelphia Fed, poured cold water on that view in a speech late Tuesday.

“Underlying inflation is above target, and it hasn’t come down,” she said. “That tells me that elevated inflation isn’t just about factors that will go away on their own.” Still, she also said she supported only gradual rate increases.

Tuesday’s inflation report showed prices rising in many areas with little connection to energy costs or AI, including streaming video services, beef and auto insurance.

But surging investment in data centers has driven up the cost of computer chips, power generation equipment, and copper, among other components, with little sign of easing. Prices for smartphones jumped 1.4% just from September to October, the government said, the largest such increase on record.

Computer prices leapt 0.5% last month, and television prices rose 3.3%, reversing the more typical trend in which those prices fall with technological innovation.

The Fed’s focus on inflation’s spread isn’t entirely new. In late August, Chair Kevin Warsh called attention to data showing that most goods and services were experiencing notable price increases. His speech at the Fed’s Jackson Hole symposium signaled that the central bank would hike rates for the first time in three years the following month.

There has been little improvement in inflationary trends since then. On Tuesday, even before October’s inflation figures were released, Fed governor Christopher Waller noted in a speech in London that 70% of services prices rose by 3% or more in September from a year earlier.

Waller also said that if monthly core inflation – which excludes food and energy prices – were to reach 0.3% or higher in October, the Fed should consider a half-point interest rate increase next month, double the size of the usual hike.

As it turned out, that’s exactly how much core inflation increased.

Even as oil prices have fallen steadily since the beginning of the month, as President Donald Trump has suggested fighting could end in the Middle East, Waller noted that energy costs in the U.S. could remain high.

The cost of insuring oil tankers traveling through the Strait of Hormuz and taking other steps to avoid attacks has added as much as $20 to $30 a barrel to oil prices, Waller said. Diesel fuel prices will also likely stay high because of a lack of refining capacity, some of which has been destroyed in the Ukraine war, he added.

And while the price of a barrel of oil has slid more than 5% over the last 30 days, it still costs about $30 more than it did at this time last year.

In a Tuesday speech at the Council on Foreign Relations, Fed governor Michelle Bowman suggested that inflation may be getting worse, saying that, “price pressures had been concentrated in a few categories, but the latest data suggest that these pressures may be broadening.”

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The European Bank for Reconstruction and Development (EBRD) announced Wednesday that it plans to invest $6 billion over the next five years in projects under Türkiye’s Renewable Energy Acceleration and Clean Transition Platform (REACT).

The platform was launched on the sidelines of the COP31 climate conference in Antalya, with the EBRD joining as an initial signatory after helping shape the initiative alongside Türkiye’s Energy and Natural Resources Ministry.

REACT aims to mobilize $300 billion by 2040 across renewable generation, grid infrastructure, energy storage, flexibility solutions, manufacturing and electrification, in line with COP31’s 35-by-35 Global Electrification Pledge.

The initiative will support Türkiye’s ambition to reach 175 gigawatts of installed solar and wind capacity by 2040.

REACT is designed as a coordination and investment-mobilization framework. It brings together public institutions, development partners, financial institutions, investors, the private sector and other stakeholders around a shared implementation agenda.

EBRD President Odile Renaud-Basso said the bank would draw on its experience in Türkiye’s energy sector to support the transition through investment and expertise.

“Türkiye has set ambitious targets for its energy transition,” Renaud-Basso said.

She welcomed the country’s determination to turn those ambitions into investment and action, highlighting cooperation with Turkish partners and the bank’s experience with Türkiye’s Industrial Decarbonization Investment Platform.

Other supporters include the European Union, World Bank, International Finance Corporation (IFC), Glasgow Financial Alliance for Net Zero (GFANZ), Climate Investment Funds (CIF), Germany’s KfW development bank and the U.N. Industrial Development Organization (UNIDO).

The EBRD is among Türkiye’s largest institutional investors, having invested more than 26 billion euros (nearly $29 billion) in the country, predominantly in the private sector.

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The head of the Turkish banking watchdog said Wednesday that he had submitted his resignation after allegations, which he denied, of ‌the authority’s links to the country’s investment fund turmoil.

“In light of the recent allegations concerning the Banking Regulation and Supervision Agency (BDDK) and myself, I asked our esteemed President Recep Tayyip Erdoğan for permission to step down,” Şahap Kavcıoğlu said.

He said that he had taken the step so that “our ​Agency would not suffer any further damage.”

Kavcıoğlu was reported as denying allegations in the media ​that he had money invested in investment funds under ​investigation or had taken bribes, saying that the BDDK had nothing ‌to ⁠do with the fund crisis.

Senior BDDK officials were detained over the weekend and subsequently jailed pending trial as part of an investigation into transactions carried out in capital ​markets involving investment ​funds.

In September, ⁠regulators ordered the liquidation of 131 funds managed by seven asset managers following warnings ​by some that they could not meet ​redemption payments.

The ⁠funds had reached more than $20 billion in assets over just three years, as nearly half a million investors. Authorities are probing over 400 suspects.

The granting of banking licenses to certain companies and groups, which have been mentioned in a recent investigation conducted by the Istanbul Chief Public Prosecutor’s Office into transactions within the capital markets, has become a subject of controversy.

Kavcıoğlu previously served as governor of the Central Bank of the Republic of Türkiye (CBRT) between 2021 and 2023.

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