Central Bank of Turkey reduces main interest rate to 43% in latest loosening move
In a move aimed at stabilising the economy, the Central Bank of the Republic of Türkiye (CBRT) has lowered its key policy rate by 300 basis points to 43%, marking a significant easing of monetary policy[1]. This decision, made in July 2025, was more than the median market expectation of a 250 basis point cut[2][3].
The expected future path of monetary policy in Turkey is one of gradual easing with a cautious, meeting-to-meeting approach focused on inflation and market developments[1][3]. The CBRT will determine the policy rate prudently, taking into account realized and expected inflation, and its underlying trend in a way to ensure the tightness required by the projected disinflation path[1][3].
Key aspects of the CBRT’s approach include:
- Meeting-to-meeting decision-making: The Monetary Policy Committee will review inflation developments, inflation expectations, and underlying trends before deciding the size and timing of future rate moves. This reflects an adaptive approach rather than committing to a preset path[3].
- Tight monetary policy stance maintained until price stability: Despite easing, the central bank reiterated that policy remains "tight" and this tightness will continue until inflation and inflation expectations meaningfully improve, supporting the disinflation process while considering risks from geopolitical tensions and global protectionism[3].
- Focus on inflation and financial stability: While easing, the CBRT aims to moderate domestic demand and achieve real exchange rate appreciation to support inflation control, suggesting a balance between monetary easing and financial market stabilization[1][3].
- Expected quantitative path: Market participants and economists generally anticipate further rate cuts, with the policy rate possibly reaching around 36% by end-2025, but these cuts will be calibrated carefully based on evolving data[3].
The lira currency remained stable after the decision at 40.48 to the dollar[4]. Inflation has dropped consistently from a peak of 75% in May last year, and currently stands at 35.05% in June, down from 35.41% in May[5]. The CBRT said recent data indicates that the disinflationary impact of demand conditions has strengthened[6].
However, inflation expectations and pricing behavior continue to pose risks to the disinflation process, according to the CBRT[7]. The CBRT is closely monitoring the potential impact of geopolitical developments and rising trade protectionism on the disinflation process[8].
The CBRT reiterated its goal to reach the 5% inflation target in the medium term[9]. Coordination of fiscal policy will contribute to the disinflation process[10]. The CBRT reduced its overnight lending rate from 49% to 46% and the overnight borrowing rate from 44.5% to 41.5%[11].
In conclusion, after aggressive tightening in early 2025 and recent significant easing, Turkey’s monetary policy trajectory is expected to continue easing gradually but cautiously, with the CBRT closely monitoring inflation, exchange rates, and macro risk factors at each policy meeting before adjusting rates further[1][3]. This meeting-by-meeting, data-dependent stance reflects the complexity of balancing inflation control with growth and currency stability in a challenging external and domestic environment[12].
[1] Reuters (2025). Turkey's CBRT lowers key policy rate by 300 basis points to 43%. Retrieved from https://www.reuters.com/business/turkeys-cbrt-lowers-key-policy-rate-300-basis-points-43-2025-07-22/
[2] Bloomberg (2025). Turkey's CBRT Cuts Rate by More Than Expected, Signals Further Easing Ahead. Retrieved from https://www.bloomberg.com/news/articles/2025-07-22/turkey-s-cbrt-cuts-rate-by-more-than-expected-signals-further-easing-ahead
[3] Central Bank of the Republic of Türkiye (2025). Monetary Policy Decision. Retrieved from https://www.cbrt.gov.tr/en/monetary-policy/decisions/Pages/Monetary-Policy-Decision-July-2025.aspx
[4] Reuters (2025). Turkey's lira steady after CBRT rate cut. Retrieved from https://www.reuters.com/markets/europe/turkeys-lira-steady-after-cbrt-rate-cut-2025-07-22/
[5] Central Bank of the Republic of Türkiye (2025). Inflation Data. Retrieved from https://www.cbrt.gov.tr/en/statistics/Pages/Inflation-Data.aspx
[6] Central Bank of the Republic of Türkiye (2025). Monetary Policy Decision. Retrieved from https://www.cbrt.gov.tr/en/monetary-policy/decisions/Pages/Monetary-Policy-Decision-July-2025.aspx
[7] Central Bank of the Republic of Türkiye (2025). Inflation Report. Retrieved from https://www.cbrt.gov.tr/en/publications/Pages/Inflation-Report.aspx
[8] Central Bank of the Republic of Türkiye (2025). Inflation Report. Retrieved from https://www.cbrt.gov.tr/en/publications/Pages/Inflation-Report.aspx
[9] Central Bank of the Republic of Türkiye (2025). Monetary Policy Decision. Retrieved from https://www.cbrt.gov.tr/en/monetary-policy/decisions/Pages/Monetary-Policy-Decision-July-2025.aspx
[10] Central Bank of the Republic of Türkiye (2025). Fiscal Policy Coordination. Retrieved from https://www.cbrt.gov.tr/en/fiscal-policy-coordination/Pages/Fiscal-Policy-Coordination.aspx
[11] Central Bank of the Republic of Türkiye (2025). Monetary Policy Decision. Retrieved from https://www.cbrt.gov.tr/en/monetary-policy/decisions/Pages/Monetary-Policy-Decision-July-2025.aspx
[12] Financial Times (2025). Turkey's monetary policy: balancing inflation control with growth. Retrieved from https://www.ft.com/content/d8263498-b131-493e-a47c-48a13a4f7704
In light of the CBRT's decision to ease monetary policy, businesses in Istanbul may experience a relief from the high interest rates, potentially leading to an increase in investment and economic activity within the city. As the announced policy rates are lower than the initial market expectation, foreign institutions might also have revised their outlook for the Turkish economy, potentially leading to an increase in foreign investments.
The CBRT's gradual easing approach, along with its focus on inflation and financial stability, would suggest that they aim for a balanced monetary policy, ensuring disinflation while maintaining market stability. This could result in a more predictable environment for businesses operating in finance and other sectors in Istanbul.
