The Central Bank of the Republic of Türkiye (CBRT) reduced its key policy rate by 100 basis points to 36% on Thursday, aligning with market expectations after holding rates steady at the previous five meetings while assessing the effects of the U.S.-Iran war.
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In a statement following its Monetary Policy Committee (MPC) meeting, the bank cited recent data indicating a deceleration in inflation trends as the basis for the rate cut.
The annual inflation rate in Türkiye fell to 29.73% in September, marking its first decline below 30% in almost five years, according to official data.
Additionally, the central bank decreased its overnight lending rate from 40% to 39% and the overnight borrowing rate from 35.5% to 34.5%.
The last interest rate reduction before this was in January 2026, aimed at mitigating inflation amid rising energy prices. Despite this cut, the CBRT warned that elevated energy prices stemming from geopolitical tensions continue to present an upside risk to the inflation outlook.
The bank stated that, despite some monthly fluctuations, recent inflation data and leading indicators confirm a decreasing underlying trend. They noted that economic activity and limited impacts from supply shocks suggest weak domestic demand.
The committee emphasized its vigilance regarding the inflation outlook, particularly the influence of geopolitical developments on costs and economic activity. It reiterated the commitment to maintaining a tight monetary policy until price stability is achieved and to supporting the disinflation process through demand, exchange rate, and expectation channels.
The CBRT also signaled its intention to determine future policy rates based on observed and expected inflation while prudently deciding the timing and extent of policy changes on a meeting-by-meeting basis, remaining alert to potential upward inflation risks.
Following the announcement, the Turkish lira remained stable at 49.63 against the dollar after experiencing a moderate easing in recent weeks. The bank indicated that it would bolster the monetary transmission mechanism with additional macroprudential measures in response to any unforeseen developments in credit and deposit markets. A broad consensus among economists anticipated the rate cut and forecast further easing by year-end, given that current rates are significantly above inflation levels. The bank also committed to closely monitoring liquidity conditions and utilizing liquidity management tools effectively.