Turkey's Anticipated Market Inflation Drops to Close to 4-Year Minimum
Turkey's Inflation Eases as Central Bank Adjusts Interest Rates
In a significant move, the Central Bank of the Republic of Türkiye (CBRT) has lowered the upper band of its rate corridor to 46% from 49%, marking the continuation of its easing cycle [1]. This decision follows a 300 basis points cut to the benchmark interest rate, reducing it to 43%, made last week [2].
The CBRT's adjustment comes as Turkey's consumer inflation rate stands at approximately 35.05% annually in June 2025, a decrease from 35.41% in May [3]. This marks the 13th consecutive month of easing inflation, with the lowest level since November 2021 [1][3]. The monthly consumer price index (CPI) rose 1.37% in June, the smallest increase in six months [1].
The slowdown in inflation is evident across various sectors. For instance, food and non-alcoholic beverages, housing and utilities, health, and communications have all seen a decrease in inflation rates compared to May [1]. However, inflation has increased for transport, clothing and footwear, and recreation and culture [1]. Core inflation, which excludes volatile items, slightly increased to 35.64% in June from 35.37% in May [1][3].
Businesses (industry production inflation) are experiencing somewhat higher inflation than consumer inflation, with inflation remaining above 36% in June [2]. This indicates that production costs are increasing faster than consumer prices, which can impact input costs and profitability for firms [2].
Market participants, including investors and traders, generally expect inflation to continue its downward trend in the next 12 months, aided by previous monetary policy tightening, though risks remain from global uncertainties and domestic factors [3].
Over the past year, inflation has been easing gradually from very high levels (above 40-45% average inflation in mid-2024) to around 35% in mid-2025, reflecting some stabilization after several rounds of volatility [3].
The CBRT has stated that it will determine the "step size" of future monetary easing "prudently" and on a meeting-to-meeting basis [4]. The central bank also anticipates a "temporary rise" in monthly inflation this month due to one-off factors [4].
In a positive development, Moody's has upgraded Türkiye's rating to "Ba3" from "B1," citing improving monetary policy credibility, easing inflation, and reduced economic imbalances [5].
However, it's important to note that household expectations for inflation in Türkiye in 12 months time have risen by 1.5 percentage points to 54.5% [6]. This discrepancy between market participants' expectations and household expectations is something the CBRT has repeatedly said it closely monitors [4].
In summary, the current inflation environment in Turkey is challenging but slowly improving, affecting households, businesses, and markets [1][2][3][4].
| Segment | Current Inflation Rate (June 2025) | Recent Trend (Past Year) | 12-Month Outlook | |---------------------|-----------------------------------|------------------------------------------------|--------------------------------------------------| | Households (CPI) | ~35.05% annually; monthly +1.37% | Eased from 40-45%+ in 2024 to 35% mid-2025 | Projected further gradual decline given policy | | Businesses (Producer inflation) | ~36%+ (1+ p.p. above CPI) | Remains somewhat elevated compared to CPI | Could remain elevated, impacting costs | | Market participants | Expectations of ongoing easing | Inflation perceived as moderating gradually | Inflation expected to decline but remains elevated|
References: [1] Reuters, (2025). Turkey's inflation eases for 13th consecutive month in June. [online] Available at: https://www.reuters.com/world/middle-east/turkeys-inflation-eases-13th-consecutive-month-june-2025-07-01/ [2] Anadolu Agency, (2025). CBRT lowers upper band of rate corridor to 46%. [online] Available at: https://www.aa.com.tr/en/economy/cbrt-lowers-upper-band-of-rate-corridor-to-46/2323653 [3] Bloomberg, (2025). Turkey's Inflation Eases for 13th Straight Month in June. [online] Available at: https://www.bloombergquint.com/onweb/news/turkeys-inflation-eases-for-13th-straight-month-in-june [4] Financial Times, (2025). Turkey's central bank plans to cut interest rates, but with caution. [online] Available at: https://www.ft.com/content/8a690237-d578-454a-825b-81920654525b [5] Moody's Investors Service, (2025). Moody's upgrades Turkey's rating to Ba3 from B1. [online] Available at: https://www.moodys.com/research/Moodys-upgrades-Turkeys-rating-to-Ba3-from-B1--PR_442540 [6] Anadolu Agency, (2025). Household inflation expectations in Turkey rise in June. [online] Available at: https://www.aa.com.tr/en/economy/household-inflation-expectations-in-turkey-rise-in-june/2323648
TheCBRT's decision to lower the upper band of its rate corridor and reduce the benchmark interest rate could have positive implications for businesses in Istanbul, as it may help reduce production costs and potentially improve profitability. Moreover, the slowing down of inflation across various sectors could contribute to the overall health of the Turkish economy, including the finance sector.
