The Central Bank of Turkey announced today a reduction in its benchmark interest rate from 43% in July to 40.5%, a decrease of 250 basis points, attributed to slowing inflation and weak domestic demand.
The institution continues the trajectory of rate cuts initiated in December 2024, although it was interrupted by a hike last April due to political turbulence.
Alongside the reduction of the one-week loan rate to 40.5%, the bank cut the overnight loan rate from 46% to 43.5% and the rate for loans with the same maturity from 41.5% to 39%.
In a statement, the Turkish central bank justified the reduction by noting that “the underlying trend of inflation had slowed in August,” stating that second-quarter GDP growth exceeded projections and domestic demand remained weak.
“Recent data shows that demand conditions are at a deflationary level,” the bank indicated, while acknowledging that “food and service prices with significant inertia exert upward pressure on inflation” and that “inflation expectations continue to pose a risk.”
Annual inflation in September stood at 32.9%, just half a point below August’s level, a month in which the Bank reiterated its goal of reaching an annual rate of 24% by year’s end.
Following years of extremely low rates to stimulate consumption and employment, the Central Bank of Turkey began a gradual rate increase in June 2023, reaching 50% by 2024. This trend began to reverse last December with a phased reduction.
Contrary to the usual practice of setting interest rates monthly, the Central Bank is holding only eight monetary policy meetings this year.
