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The Turkish central bank lowered its benchmark, one-week repo rate by 250 basis points to 40.5% on Thursday, continuing the easing that it kicked off in July, albeit at a slightly slower pace, as it cited that the underlying trend of inflation has slowed down in August.
The Monetary Policy Committee (MPC) of the Central Bank of the Republic of Türkiye (CBRT) has also lowered its overnight lending rate from 46% to 43.5% and the overnight borrowing rate from 41.5% to 39%.
The rate cut came in line with the latest market forecasts following a stronger quarterly growth and a fresh crisis in the main opposition Republican People’s Party (CHP) amid the appointment of a court-mandated name to the party’s Istanbul branch after a lawsuit on vote-buying.
Surveys initially expected the bank could reduce the key rate by 200 basis points, but many financial institutions then updated their projections.
“The underlying trend of inflation slowed down in August. While GDP growth was above projections in the second quarter, final domestic demand remained weak,” the CBRT said.
“Recent data indicate that demand conditions are at disinflationary levels,” it added.
However, the bank said that food prices and service items with high inertia “are exerting upward pressure on inflation.”
“Inflation expectations, pricing behavior, and global developments continue to pose risks to the disinflation process,” it added.
Annual inflation slowed down to less than expected to 32.95% in August, down from 33.52% in July, while it rose 2.04% monthly, as per official data.
The government, according to its new Medium-Term Program (MTP), expects inflation to cool to 28.5% this year and to 16% in 2026 before dropping to single digits the following year. The bank sees inflation between 24% and 29% by year-end.
“The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels,” the central bank said on Thursday.
“The macroeconomic framework outlined in the Medium-Term Program will contribute to this process,” it added.
With updated figures in the MTP, covering the period 2026-2028, the government changed this year’s estimate for inflation from the previous 17.5% while also adjusting growth projections downward – the move analysts welcomed as more suitable and realistic.
“The Committee will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets,” the bank also said.
Most economists and polls expect the bank to continue lowering rates through the end of the year amid a continued period of falling inflation. The inflation stood at around 75% last May.
“The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” the bank reiterated.
The policymakers have earlier also stressed their cautious and meeting-to-meeting approach.
“Monetary policy stance will be tightened in case of a significant deviation in inflation outlook from the interim targets,” it pledged.
“In case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism will be supported via additional macroprudential measures. Liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively,” it also said.
