The Central Bank holds steady, but manufacturing is contracting!

The interest rate decision that the markets were eagerly awaiting was announced last Thursday following the Central Bank's Monetary Policy Committee (MPC) meeting. In line with the general market expectation, MPC members kept the policy rate—the one-week repo auction rate—steady at 37 percent.

In taking this decision—that is, leaving the policy rate unchanged rather than cutting it—we see that the emphasis was mainly on energy prices. In the MPC text, it is emphasized that despite the continued weak course of domestic demand, "high-flying" energy prices create upside risks for the inflation outlook. In this regard, we can state that in the period ahead, the biggest risk perception in the fight against inflation will come from the energy group.

At this point, I have bad news. On the very day of the MPC meeting, the Mediterranean diesel price exceeded $1,500 per ton for the first time. If this continues, the issue of fuel prices will become a major problem in the short term ahead, and we will see three-digit prices especially in diesel, which is the basic cost item in logistics. Unfortunately, since the increase in fuel prices also increases the spread of inflation, monthly inflation developments in the coming months may not be as desired. This situation will also cause the already ongoing tightness to last even longer, so the troubles in the real sector continue. Especially the situation in manufacturing is now reflected in the data more clearly.

On the day the interest rate decision was announced, TÜİK published industrial production data for July 2026. According to this, we see that the sharp decline in industrial production has become even more pronounced. In July, industrial production fell by 0.3 percent year-on-year, marking three consecutive months of annual decline. The monthly decline in the data was 1.0 percent.

When you look at the sub-sectors of manufacturing, in July 2026 the mining and quarrying sector index decreased by 2.2 percent compared to the previous month, the manufacturing sector index decreased by 0.8 percent, and the electricity, gas, steam, and air conditioning production and distribution sector index decreased by 2.2 percent. In short, the side effects of the ongoing tightening program on the manufacturing industry have now reached a level of causing permanent damage.

On this occasion, I would like to reiterate my recommendation, which I always remind at every opportunity. The real sector's short-term, high-interest "spot" loans should urgently be converted into long-term, installment-based commercial loans. Otherwise, we will hear more news of bankruptcy protection and insolvency. Bounced checks and protested bills will continue to increase, and ultimately the rise in banks' non-performing loan ratios could reach a problematic point.