MediumIV Macro Policy & Sovereign Debt21 October 2026, Wednesday

Yılmaz defends 21% inflation target for next year in parliament

Vice President Cevdet Yılmaz told parliament's Plan and Budget Committee on 21 October that the 2027 targets are 21% inflation and 4.2% growth. The same presentation put 2027 interest spending at 3.975 trillion lira and the budget deficit at 3.868 trillion lira.

Location: ANKARA

According to the presentation as reported by Anka, the 2027 budget foresees spending of 27.276 trillion lira and revenue of 23.408 trillion lira. That puts the deficit at 3.5% of national income, or 2.8% excluding earthquake spending. The year-end estimate for 2026 is a deficit of 2.632 trillion lira, or 3.1%. Interest spending rises from 2.825 trillion lira in 2026 to 3.975 trillion lira in 2027, an increase of 40.7% calculated from the source figures. Interest spending exceeds the deficit by roughly 107 billion lira, so the entire 2027 deficit is accounted for by interest.

According to Paratic, Yılmaz defended the 21% year-end inflation target for 2027, while the CBRT's October survey puts expectations at 23.3%. Hisse.net, citing the same survey, reported that 12-month-ahead CPI expectations rose from 23.70% to 23.89%, while 2027 growth expectations held at 3.9%. The government's 4.2% growth target is thus 0.3 points above the market. Annual inflation fell below 30% in September for the first time since November 2021, at 29.73%. The housing, water, electricity and gas group, however, remained at 39.99%.

The main items of the budget proposal were announced on 16 October, according to Bloomberg HT. Energy bill support rises 62% to 605 billion lira, while defence and security receive 3.454 trillion lira. Yılmaz said on 21 October that payments in the winding-up of troubled funds would accelerate once the relevant law is enacted. The presentation came one day before the CBRT's rate decision at 14:00 on 22 October, and the interest spending estimate depends directly on the pace that decision sets.

Talay assessment

Bottom line

The budget projects a small primary surplus in 2027, but interest spending rises 40.7% and accounts for the entire deficit. The government's 21% inflation target sits below the market's 23.3% expectation. That gap will set the pace of rate cuts and therefore the size of the interest bill. The most likely path is an upward revision of the target during the year, with interest remaining the fastest-growing item in the budget.

Likely effects

Public financesNegative1–6 months
Interest spending is 3.6% of national income and the deficit 3.5%; the primary surplus is only about 107 billion lira, leaving a very thin buffer against shocks.
Monetary policyUncertainWeeks
The 2.3-point gap between target and expectations requires the CBRT to keep its rate cuts measured.
Households and energyUncertain1–6 months
Energy bill support of 605 billion lira will restrain the 39.99% inflation in the housing group, but it enlarges the budget burden.

Possibilities, ranked

1
Target missed, interest burden stays55%
Inflation ends 2027 above 21%; cuts stay slow and interest spending overshoots the projection.
Watch: The 2027 year-end expectation in the CBRT Survey of Market Participants rising above 23.3%
2
Disinflation accelerates30%
Housing and energy prices calm, expectations converge towards 21% and the interest bill comes in on projection.
Watch: Annual housing-group inflation falling below 39.99% in October and November CPI
3
Fiscal slippage15%
A fund crisis, earthquake costs or defence spending push the deficit above 3.5%.
Watch: Appropriations being raised at committee or General Assembly stage

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

2027 interest spending▼ TRY 3.975 trn
Interest spending growth▼ +40.7%
2027 deficit/GDP▼ 3.5%
2027 inflation target▲ 21%

Bottom line

Likely effects

Possibilities, ranked

Sources