Turkey’s Central Bank Cuts Rates by 100 Basis Points Amid Warnings Over Lira and Inflation
Key Facts
Turkey’s central bank cut its policy rate by 100 basis points on October 22, resuming monetary easing after holding the rate at 37% since late February, according to an Investing.com report. It kept its overnight lending and borrowing rates relatively high, signaling that the policy-rate cut does not remove the tightness of other funding tools. It had pushed the overnight lira rate to a ceiling of 40% through liquidity measures, and that remained in place through August, according to the same report. The decision comes as the bank describes the underlying inflation trend as slowing, while warning about the effect of elevated energy prices linked to geopolitical tensions. In contrast, the cut prompted a Commerzbank analyst to warn of increased risks of lira depreciation and that the improvement in inflation could be temporary.
The Monetary Policy Committee said the latest inflation figures and leading indicators confirm a slowdown in the underlying price trend, and that economic activity data point to continued weakness in domestic demand. But it warned that higher energy prices could pose an upside risk to the inflation outlook, putting the rate-cut path at odds with competing considerations. Data from the Turkish Statistical Institute showed consumer price inflation at 29.73% year over year in September, compared with 33.29% in September 2025. On a monthly basis, the index rose 1.84% in September. The core index, which excludes unprocessed food, energy, alcoholic beverages, tobacco and gold, recorded an annual increase of 29.00% and a monthly increase of 2.01%.
Commerzbank analyst Tatha Ghose said policy easing increases the risk of lira depreciation, questioning whether slowing inflation marks the start of a sustainable trend. He wrote that the improvement "may prove to be a one-off, not the beginning of a genuine decline in inflation." The assessment comes as Turkish Statistical Institute data showed annual inflation falling compared with the previous year, while monthly inflation remained positive in September. After the rate decision, the dollar stood at 49.6275 lira, compared with a close of 49.6025 lira the previous day, according to Investing.com. EL7 data showed a daily close for the dollar against the lira at 49.7342 on October 23.
The decision coincided with a decline in Turkey’s consumer confidence index to 84.8 in October from 91.9 in September, a monthly decrease of 7.7%, according to figures reported by the Hurriyet Daily News. Households’ assessment of their current financial situation fell to 68.3 from 75.3 the previous month. Households’ expectations for their financial situation over the next twelve months also fell to 86.4 from 93.7. These readings place the weak domestic demand cited by the bank in a broader context, alongside consumers’ concerns about their financial circumstances. In equities, the BIST 100 closed down 3.08% on October 22 at its lowest level of the session, according to EL7 data.
The central bank said it would determine the size and timing of monetary policy steps cautiously, meeting by meeting and with a focus on inflation expectations. It added that it would tighten policy if those expectations deteriorated significantly and persistently, preserving the option of reversing course on easing if pressures intensified. The bank’s calendar includes a Monetary Policy Committee meeting on December 10, with its summary to be published on December 17. An Investing.com report quoted economists as expecting a further 100-basis-point cut at the December meeting, which could put the policy rate at 35% by year-end. Before then, Turkey’s September unemployment data are scheduled for release on October 27, while the previous reading listed is 7.8%.