Turkiye’s central bank cut interest rates for the fourth time in a row, accelerating the pace of reductions following favourable inflation data.
The Monetary Policy Committee led by Governor Fatih Karahan lowered the one-week repo rate to 38% from 39.5%, according to a statement on Thursday.
“In November, consumer inflation was lower than expected due to a downward surprise in food prices,” the MPC said. However, it emphasised caution, saying broad expectations of price rises and price-setting behaviour by firms continue to pose risks to the disinflation process.
The lira was little changed after the decision, trading at 42.62 per the US dollar at 2.49pm in Istanbul. Shorter-dated bonds extended gains, with the two-year yield dropping 22 basis points to 37.63%.
“The cooling in inflation paved the way to a 150bp rate cut from the Turkish central bank today, which was larger than our call,” said Maya Senussi, lead economist at Oxford Economics. “We expected the central bank to err on the side of caution and resist a larger cut given the rise in medium-term inflation expectations.”
Global banks were almost evenly divided in expecting a reduction of 150 basis points and 100 from the Turkish policymakers, though tilted slightly more toward a smaller cut. Bloomberg reported earlier that people briefed by Karahan said the bank was likely to pay closer attention to negative developments than the positive inflation data.
The central bank evaluates rates decisions on a “meeting-by-meeting basis with a focus on the inflation outlook,” the MPC said on Thursday. “Monetary policy stance will be tightened in case of a significant deviation in inflation outlook from the interim targets.”
The bank also lowered its overnight lending rate to 41% from 42.5% and overnight borrowing rate to 36.5% from 38%.
Annual inflation slowed more than forecast to 31.1% in November and is poised to end the year around that level, according to Treasury and Finance Minister Mehmet Simsek. That’s above this year’s target of 24% and stems from unexpectedly high food prices in recent months, the central bank previously said.
Minimum Wage
Investors are now on the lookout for the government’s decision on the minimum-wage increase, expected later this month. The adjustment has major implications for domestic demand, corporate-pricing behaviour and the inflation trajectory.
Analysts at JPMorgan Chase & Co expect a 25% raise.
“We think annual inflation will ease below 30% in early 2026, assuming a moderate hike in the minimum wage,” Senussi said. She expects interest rates of 26.5% by the end of next year.
Nick Rees, head of macro research at Monex Europe, said “the recent softening in price growth opened the door” to a larger-than-expected cut on Thursday. “This risks looking like an overly dovish bias — which would pose a challenge to the Turkish central bank’s perceived credibility if this pattern persists into 2026.”
