Türkiye’s Central Bank Cuts Interest Rate to 47.5% After 22 Months

The Central Bank of the Republic of Türkiye (CBRT) has announced its first interest rate cut in nearly two years, reducing the policy rate by 250 basis points to 47.50%. This decision reflects a recalibration of monetary policy to align inflation control with economic growth and stability.

The decision to lower the policy rate comes amid signals of easing inflationary pressures and slowing domestic demand. The CBRT’s Monetary Policy Committee (MPC) emphasized that the move aims to strengthen the ongoing disinflation process while maintaining fiscal and monetary alignment.

Since the transition to orthodox economic policies in 2023, Türkiye’s central bank has maintained a tight monetary stance, with the policy rate previously peaking at 50%. This rate reduction marks a pivotal shift in economic management.

Interest Rate Trends Since 2023

Following Türkiye’s Presidential and Parliamentary Elections in May 2023, the CBRT adopted a series of aggressive rate hikes to combat inflation:

  • May 2023: Raised from 8.5% to 15%.
  • Incremental increases brought the rate to 50% by March 2024.

The elevated rate of 50% remained unchanged for several months until today’s cut to 47.50%, signaling a nuanced approach to fostering sustainable growth while addressing inflationary risks.

Key Economic Indicators and Policy Adjustments

The CBRT highlighted key factors behind its decision:

  • Inflation Trends: Core inflation showed signs of stabilization in November, with preliminary December data indicating further moderation.
  • Domestic Demand: Slower consumption patterns are expected to support a continued decline in inflation.
  • Currency Stability: Measures to bolster the Turkish lira and improve inflation expectations remain priorities.

Additionally, short-term borrowing and lending rates will be adjusted with a margin of +/- 150 basis points around the policy rate.

Looking Ahead

The CBRT reaffirmed its commitment to a tight monetary stance until inflation shows a clear and lasting decline. Future rate decisions will be guided by inflation dynamics, domestic demand trends, and broader financial conditions.

As part of its strategy, the central bank plans to monitor economic indicators closely, ensuring monetary policy remains responsive to evolving conditions. This decision sets the stage for Türkiye’s central bank to navigate the delicate balance between growth and inflation control in 2025.