CBT Lowers Effective Funding Rate to 37% as Inflation Risks Ease

Key Facts

1The Central Bank of Turkey lowered the effective funding rate from 40% to 37% citing easing inflation risks.

2Inflation in Turkey is expected to fall below 30% this year amid slowing growth and weaker demand.

In a move reflecting a potential shift in Turkish monetary policy, the Central Bank of Turkey (CBT) has lowered its effective funding rate from 40% to 37%. This decision is driven by easing inflation risks, weakening domestic demand, and a recovery in foreign exchange reserves. According to reports, the central bank is expected to initiate a formal cycle of interest rate cuts during the fourth quarter of 2026 as economic growth continues to slow.

Recent economic data shows a positive response to the current policy path, with inflation in Turkey expected to fall below the 30% threshold this year. Per market data released on September 3, 2024, Turkey's annual inflation rate stood at 31.51%, slightly lower than the forecasted 31.62%. Additionally, trade balance data for the same period showed a deficit of -$5.24 billion, a notable improvement from the previous deficit of -$7.34 billion.

Investors should monitor the sustainability of monthly inflation, which recorded 1.84% in September, as this figure serves as a key pillar for the CBT's next move. While real-time instrument price data is currently unavailable, focus remains on growth indicators, with GDP growing at 2.3% YoY in the second quarter of 2026. The future interest rate path will depend on the economy's ability to balance inflation control with supporting industrial activity.