The Turkish Central Bank lowered its benchmark interest rate by 100 basis points to 39.5 percent on Thursday, marking another step in its gradual monetary easing cycle, the state-run Anadolu news agency reported.
In a statement following a Monetary Policy Committee meeting chaired by central bank governor Fatih Karahan, the bank said the one-week repo rate, which serves as the main policy rate, had been reduced from 40.5 percent to 39.5 percent.
It was the third time in a row that the bank has lowered the benchmark rate, but policymakers slowed the pace of easing after a 250-basis-point cut delivered in September.
The annual inflation rate climbed in September for the first time in more than a year, reaching 33.29 percent, up from 32.95 percent in August, according to official figures from the Turkish Statistical Institute (TurkStat).
The central bank said in its statement on Thursday that inflation was trending upward in September and that recent data suggest demand conditions are consistent with disinflation, although the process has slowed.
Last month’s rise was driven by widespread increases in service costs, led mainly by higher university tuition fees and school bus fares, adding to the financial strain on Turkish families at the start of the new school year.
The bank warned that recent price developments, particularly in food items, pose increasing risks to the disinflation outlook through their impact on expectations and pricing behavior.
The central bank, however, reiterated its commitment to maintaining a tight monetary stance “until price stability is achieved,” saying that its policy framework would continue to support disinflation through the demand, exchange rate and expectations channels.
The bank said future policy decisions will depend on inflation data and trends to keep monetary conditions in line with its goals. It added that policy could be tightened if inflation rises too far and that liquidity will be closely monitored, with extra measures taken if needed.
According to a Reuters report this week, senior officials from Turkey’s central bank told foreign investors last week that they are increasingly worried about persistent inflation and may slow the pace of upcoming interest rate cuts.
The discussions took place on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank in Washington, where Karahan and his two deputies met with international bondholders.
Four foreign investors who took part in some of the closed-door sessions told Reuters that the officials did not provide specific guidance on this week’s monetary policy decision but signaled a more cautious approach after two large rate reductions in July and September.
Since mid-2023 the Central Bank of Turkey has reversed years of unorthodox low-rate policy blamed for driving inflation and weakening the Turkish lira. The shift toward tighter monetary policy has helped rebuild foreign reserves and attract renewed investor interest in Turkish assets.
However, investors said they are closely watching the upcoming retirement of Deputy Governor Cevdet Akçay, a respected member of the monetary policy committee known for his hawkish stance. Akçay is due to leave his post in April upon reaching the mandatory retirement age, and no successor has yet been announced.
Economists say his departure could test investor confidence in the central bank’s commitment to price stability as it seeks to balance easing with inflation control.