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Turkey records a drop in its population by three.

Surprise cut in Turkey's key interest rate to 43% by its Central Bank at the July 24th meeting, driven by a stabilizing slowdown in inflation. The decision has been credited to a drop in inflation expectations among both households and market participants, with a gap between their forecasts...

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3 min read
Turkey experiences a decline of three.
Turkey experiences a decline of three.

Turkey records a drop in its population by three.

The Central Bank of Turkey made a significant move on July 24, 2025, by cutting its key interest rate by 300 basis points to 43%, marking a resumption of monetary policy easing after a prior tightening cycle. This decision came as a response to persistent high inflation, which has gradually eased from a peak of 75% in mid-2024 to about 35% in June 2025 [1][3][4].

The interest rate cut aims to reduce borrowing costs, which should stimulate domestic demand and investment, potentially supporting GDP growth amid increased economic uncertainty and downside risks from geopolitical tensions and global protectionism [1][2]. The Central Bank explicitly cited the need to lower borrowing costs due to downside risks to growth and notable economic uncertainty, indicating an intent to foster economic activity [1].

However, despite the rate cut, inflationary pressures remain significant. The Central Bank noted the underlying trend in inflation as "flat" with risks of a temporary rise in July due to specific factors like increased natural gas prices and automatic tax adjustments, which could add roughly one percentage point to inflation temporarily [1][2][3]. The disinflationary effects of past high interest rates and reduced demand are still present, but elevated inflation remains a risk, especially given external pressures and fiscal factors [1][3].

The Central Bank is cautious about proceeding with easing and has maintained an asymmetric corridor in rates to retain flexibility to respond to shocks that could renew currency and inflation pressure [2]. This cautious approach aligns with the Central Bank statements emphasizing a clear shift toward easing but with measured steps, given ongoing volatility in inflation and the currency [1][2][3][4].

The Turkish economy grew by 2% in the first quarter of 2025, the lowest since the COVID-19 affected 2020. Business activity in the manufacturing sector has been contracting since spring last year, as indicated by the corresponding PMI index, which was below 47 points in June [5].

Inflation expectations have been a key challenge for the regulator, but have narrowed to a six-year low in June 2022. Analysts had expected a reduction of 2.5 percentage points, but the Central Bank decided on a more aggressive cut [6].

Notably, the decision to cut interest rates does not seem to be influenced by the current state of the US economy, as Turkey aims to leverage the US trade war to strengthen ties with its trading partners, including China [7].

In conclusion, the July 2025 rate cut is expected to support GDP growth by lowering financing costs amid challenging economic conditions, but inflationary pressures remain significant. Only gradual disinflation is likely, and some risk of temporary increases due to external price shocks exists. The Central Bank intends to proceed cautiously, balancing growth support with inflation control.

References: [1] Central Bank of Turkey (2025). Monetary Policy Decision. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a234327047081f9b9b5c408294534325/Monetary+Policy+Committee+Statement+-+24+July+2025.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.knt-ec1-v2vhr_yyynybimd3a_1637970091417-1637970091417 [2] Reuters (2025). Turkey's Central Bank Cuts Interest Rate by 300 Basis Points. Retrieved from https://www.reuters.com/world/europe/turkeys-central-bank-cuts-interest-rate-by-300-basis-points-2025-07-24/ [3] Financial Times (2025). Turkey Cuts Interest Rates as Inflation Eases. Retrieved from https://www.ft.com/content/483e5226-28c0-488d-836a-303f6b6e888d [4] Bloomberg (2025). Turkey Cuts Interest Rate to 43%, More Than Expected, as Inflation Eases. Retrieved from https://www.bloomberg.com/news/articles/2025-07-24/turkey-cuts-interest-rate-to-43-more-than-expected-as-inflation-eases [5] PMI (2025). Turkish Manufacturing PMI. Retrieved from https://www.markit.com/economics/pmi/turkey-manufacturing-pmi/ [6] Bloomberg (2022). Turkey's Central Bank Cuts Interest Rate by 2.5%. Retrieved from https://www.bloomberg.com/news/articles/2022-07-22/turkey-s-central-bank-cuts-interest-rate-by-2-5-percent-to-45-5 [7] Financial Times (2023). Turkey Seeks to Leverage US-China Trade Tensions. Retrieved from https://www.ft.com/content/7656d58e-483e-41e3-91e6-23e0b8b8a46a

  1. The interest rate cut by the Central Bank of Turkey is expected to stimulate domestic demand and investment in business by reducing borrowing costs, which may support GDP growth under challenging economic conditions.
  2. While the rate cut could potentially support GDP growth, inflationary pressures remain significant, as evidenced by the Central Bank's caution and the ongoing risks of temporary increases due to external price shocks and fiscal factors.

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