Turkish Central Bank cuts policy rate to 39.5% amid inflation concerns

The Central Bank of the Republic of Türkiye lowered its key policy rate by 100 basis points on Thursday, bringing the benchmark one-week repo rate down from 40.5% to 39.5%. This anticipated move comes despite recent inflationary pressures, with the bank noting that while demand conditions support disinflation, the pace of price deceleration has shown signs of slowing.

Inflationary Pressures and Policy Stance

In its official statement, the Monetary Policy Committee highlighted increased underlying inflation trends observed in September, with particular concern about food prices. "The risks posed by recent price developments to the disinflation process through inflation expectations and pricing behavior have become more pronounced," the bank stated, while reaffirming that "the tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process."

Medium-Term Inflation Targeting

The Central Bank emphasized its commitment to achieving the medium-term inflation target of 5%, stating that policy decisions would be guided by both realized and expected inflation trends. The institution pledged to "create the monetary and financial conditions necessary" to reach this goal, indicating that future rate decisions would be carefully calibrated based on inflation performance and underlying economic indicators.

Recent Monetary Policy Context

Türkiye's annual inflation rate edged higher to 33.29% in September from 32.95% in August, exceeding market expectations. The latest reduction continues the bank's measured easing cycle that began in December 2024, following an aggressive tightening period from May 2023 to March 2024 that saw rates climb from 8.5% to 50%. Previous rate cuts this year have brought borrowing costs down from their peak as the bank navigates between supporting economic activity and containing persistent price pressures.