Turkey Cuts Rate by 150 bps to 38%

The Central Bank of Turkey cut its benchmark policy rate by one percentage point to 37% in its first meeting of 2026, less than the median market expectations of a 1.5 percentage point cut, but still marking the lowest rate since November of 2023. The central bank noted that the underlying inflation trend softened in the end of last year despite the increase in the headline rate due to higher food prices, warranting a slight reduction in tight monetary conditions. Still, policymakers stressed that upside risks to inflation remain, as unpredictable pricing behaviour and elevated inflation expectations continued to pose risks to the disinflation process.

The Central Bank of Turkey cut its policy rate to 38% from 39.5% in December 2025, marking a fourth consecutive reduction, and by more than market expectations of a softer cut to 38.5%, amid softer-than-expected November inflation. Food prices came in lower than projections, helping ease the underlying inflation trend for a second month. The bank also reduced its overnight lending and borrowing rates to 41% and 36.5%, respectively. Despite improving demand conditions and a slight cooling in price pressures, the Monetary Policy Committee warned that inflation expectations and pricing behavior still threaten the disinflation path. It reaffirmed that tight monetary policy will continue until price stability is secured, with rate decisions made cautiously and guided by data. The bank aims to steer inflation toward its 5% medium-term target, even as annual inflation at 31.1% in November remains well above the 24% year-end goal.

The Central Bank of Turkey cut its key one-week repo rate by 100bps to 39.5% in October 2025, as expected, alongside reductions in the overnight lending rate to 42.5% and the borrowing rate to 38%. While demand conditions suggest disinflationary pressures, recent data indicate a slower pace of disinflation and rising risks from food prices. The Bank reaffirmed its commitment to a tight monetary stance until price stability is secured, emphasizing that policy will be guided by realized and expected inflation and its underlying trend. The Committee will adjust rates cautiously, reviewing each step based on inflation dynamics, and stands ready to tighten further if inflation deviates from interim targets. It also signaled potential macroprudential measures to support monetary transmission if needed. Liquidity conditions will be closely managed, with the overarching goal of achieving a 5% medium-term inflation target through a transparent, data-driven approach.