Central Bank of Turkey announces decision on interest rate

The Central Bank of Turkey (Türkiye Cumhuriyet Merkez Bankası, TCMB) announced a cut in the key interest rate. Following the Monetary Policy Committee meeting, the weekly repo rate was reduced from 43% to 40.5% per annum, corresponding to a 250 basis point reduction.

At the same time, other rates were also lowered: the overnight short-term lending rate decreased from 46% to 43.5%, and the borrowing rate for the same term fell from 41.5% to 39%.

Context and rationale

According to the Central Bank, core inflation slowed in August. The economy in the second quarter grew faster than expected, yet domestic final demand remains restrained.

Recent data indicate that demand dynamics are creating conditions for lower inflation. Nevertheless, food and services with high “inflation inertia” continue to exert upward pressure on prices.

Inflation expectations, pricing characteristics, and the external economic environment remain risk factors that may slow down disinflation.

Conditions and further measures

The regulator emphasized that policy will remain tight until sustainable price stability is achieved. Particular attention is given to the impact of measures on domestic demand, the exchange rate, and business and consumer expectations.

The Central Bank plans to actively manage liquidity and, if necessary, employ additional macroprudential measures. Decisions on rates will be based on actual inflation, its core dynamics, and intermediate targets.

If inflation deviates significantly from projections, tightening of monetary policy may be implemented.

Potential impact and expectations

Markets expected a roughly 300 basis point cut in the key rate, but the actual reduction was 250.

This decision may stimulate economic activity by lowering borrowing costs, yet the risk of rising inflationary pressures remains. The exchange rate dynamics and global economic conditions will play a key role in the further development of the situation.