2025 was a year marked by volatilities driven by uncertainties created by global trade tariffs and geopolitical developments. Precious metals such as gold and silver reached historically high levels due to safe-haven demand. Recent developments indicate that uncertainties will remain on the agenda in 2026 as well. Despite all these developments, global economic growth proved resilient. According to the IMF’s Global Economic Outlook Report published in January, global growth in 2025 is estimated at 3.3%, at a level similar to the previous year. In particular, artificial intelligence and technology investments concentrated in the US and Asia, along with more supportive financial conditions, have positively affected growth. Growth is expected to carry the same momentum into 2026.
The impact of tariffs on inflation also remained limited. As of the end of 2025, annual consumer inflation stood at 2.7% in the US and 1.9% in the Euro Area. While inflation in the Euro Area has returned to its medium-term target, it continues to remain above target in the US. A gradual decline in global inflation is expected in the coming period.
Developments in trade policies and the course of inflation have influenced central banks’ monetary policies. While the ECB completed its rate-cut cycle in the first half of the year, the Fed resumed rate cuts in September, bringing its policy rate down by a total of 75 basis points over the course of the year to the 3.50–3.75% range.
In 2026, trade wars and geopolitical developments are expected to continue to shape global financial markets and macroeconomic policies. Markets expect the Fed to make at least two rate cuts in 2026. However, the increasing disagreement among Fed members increases uncertainty on this issue. Developments regarding the monetary stance of the Fed Chair who will take office in May will also be closely monitored by the market.
The domestic economy remained strong in the first nine months of the year, with an annual growth of 3.7%. Domestic demand continued to be the main driver of growth. Growth spread across sectors, and excluding agriculture, growth was stronger at 4.5%. Overall, we estimate growth to be around 3.5% in 2025.
A significant deterioration was observed in the foreign trade balance in the last quarter of the year. Increases in both gold and core imports were the main drivers. The trend in the last quarter points to a continued deterioration. As of November, the 12-month cumulative current account deficit increased by 10 billion USD to 23.2 billion USD compared to the end of 2024. The rise in the current account deficit pushed the current account deficit-to-GDP ratio to 1.5%, which remains manageable.
Annual consumer inflation declined from 44.4% at the end of 2024 to 30.9% at the end of 2025. However, high inflation expectations, stickiness in services inflation, and price increases in food due to drought and frost slowed the pace of disinflation. We expect annual inflation to remain well above the CBRT’s medium-term target (16%) and to be around 25% at the end of 2026.
The CBRT resumed its rate-cut cycle in July and reduced the policy rate by a total of 900 basis points over five meetings to 37.0%. Overnight lending and borrowing rates were also reduced to 40.0% and 35.5%, respectively, maintaining the width of the asymmetric interest rate corridor. Due to stickiness in inflation, we expect the easing cycle in 2026 to proceed gradually and in a measured manner.
The budget deficit in 2025 ended significantly below the level projected in the Medium-Term Program. While the central government budget deficit reached TRY 1.799 trillion by year-end (2.9% of GDP), the primary balance posted a surplus of TRY 255 billion (0.4% of GDP). We believe it is important to maintain fiscal discipline within the MTP framework in order to support the disinflation process.
Along with rate cuts, deposit and loan interest rates declined, and credit growth accelerated. According to weekly data, in 2025 TL loans grew annually by approximately 44.0%, while FX loans grew by 19%. In the banking sector, the non-performing loan ratio increased from 1.8% at the end of 2024 to 2.5% as of December 2025, but remains at low levels. The capital adequacy ratio (CAR) stood at 19.7% in December, well above the legal minimum. The core CAR is 15.1%.
Following the CBRT’s simplification steps and the decision to terminate all FX protected deposits (KKM), the KKM balance fell to USD 0.1 billion as of January 23. Since March 18, 2025, the FX deposits had increased by USD 45 billion to around USD 250 billion, fuelled by rise in gold prices. Excluding gold price and exchange rate effects, the FX deposit increase was limited to around USD 14 billion.
In 2025, CBRT reserves increased significantly due to valuation effects from rising gold prices. Gross reserves reached USD 216 billion as of January 23. For the full year, Turkey recorded inflows of USD 2.3 billion in equities, USD 2.9 billion in bonds, and USD 18 billion in swaps. The country’s risk premium, as measured by 5-year CDS, declined from 380 basis points at the beginning of the year to 204 basis points by the end of the year.
In 2026, the effects of trade wars and geopolitical developments will continue to be monitored. While reciprocal tariff policies pose risks to the external balance, economic recovery in major trading partners may help offset these effects. In line with inflation forecasts, the CBRT is expected to continue gradual rate cuts in 2026. In addition, de-dollarization, reserve management, and capital flows will remain important factors in determining monetary conditions.
The banking sector enters 2026 with uncertainties both domestically and globally. However, banks have the capacity to manage these risks through prudent policies. The rapid resolution of uncertainties and reduction of risks are of critical importance for the sector. Re-establishing a disinflation environment, declining country risk premium, expanding financing opportunities, and improving the investment climate will support the financial sector’s long-term growth potential.