Central bank cuts by 100 basis points

Inflation remains a problem

Businesses wanted deeper reduction

Turkey’s central bank made a modest interest-rate cut despite inflationary pressures, resisting calls for a deeper move to boost the country’s struggling economy.

The bank lowered its key lending rate by 100 basis points on October 23, taking the one-week repo to 39.5 percent, but warned that inflationary headwinds could restrict further reductions.

“The risks posed by recent price developments, particularly in food, to the disinflation process through inflation expectations and pricing behaviour have become more pronounced,” the bank’s monetary policy committee said in a statement. 

Businesses and some political figures had called for a deeper reduction, citing a need for easier access to credit to fund economic growth. In September, the bank had cut by 250 basis points.

The central bank was under pressure from all sides, economist Mustafa Sönmez told AGBI, even with September’s inflation coming in at 3.2 percent on the month – lifting the annual rate to almost 33.3 percent – and with October’s figure expected to be similar. 

“The cut came amid high pressure on the central bank and while it may not have met the expectations of those applying it, at least in its defence the bank can say ‘we did make a cut despite inflation’,” he said. 

The day before the central bank announced its decision, Moody’s senior analyst Heiko Perjessy told an Islamic finance conference in İstanbul that disinflationary momentum in Turkey had noticeably slowed, with core inflation stuck at around 2 percent per month. 

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With “political noise” having a history of undermining investor confidence, he warned that political developments could further complicate monetary policy.

Those include legal action targeting senior opposition figures, including the arrest in March of İstanbul mayor Ekrem İmamoğlu – the Republican People’s Party candidate in the next presidential election – over a series of accusations including fraud and abuse of office. He denies the allegations.

Further noise came in the form of the 2026 draft budget, unveiled on October 17, which foresees a sharp increase in spending, seen by some analysts as a signal of looser fiscal policy ahead of potential early elections.

Uncertainty over the economy has also eroded public sentiment, with consumer confidence dipping for the second month in a row, according to data released this week by state statistics agency Turkstat.