Inflation Drop Opens Door for Rate Cuts in Turkey

Turkey’s annual inflation eased to 33%, creating new room for the Central Bank of the Republic of Turkey (CBRT) to resume interest rate cuts. Economists suggest that the moderation in price pressures could pave the way for more aggressive monetary easing in the months ahead.

Inflation Decline Strengthens Policy Flexibility

The latest data showed that consumer price increases have slowed compared to previous highs, strengthening expectations that the CBRT may use this momentum to reduce borrowing costs. Analysts note that the disinflation trend is crucial in determining whether Turkey can balance growth and financial stability in the current global climate.

William Jackson, senior emerging markets economist at Capital Economics, highlighted the significance of this trend:

“The continued decline in inflation allows the Central Bank to pursue further policy loosening.”

According to Jackson, the easing of core inflationary pressures further reinforces the likelihood of a substantial move in the upcoming Monetary Policy Committee (PPK) meeting.

Market Focus on Repo Rate

Capital Economics forecasts that the CBRT will reduce its one-week repo rate by 200 basis points, bringing it down from 43% to 41%. This projection underscores the growing consensus that the central bank is prepared to deepen monetary easing to support economic activity.

The decision is expected to be announced on Thursday, with markets closely watching for the scale of the adjustment.

Broader Context: Balancing Growth and Risks

The debate over Turkey’s interest rate policy has intensified as the government seeks to maintain economic momentum while combating structural vulnerabilities such as currency volatility, external financing needs, and fiscal pressures.

The easing of inflation offers temporary relief, but economists stress that any rapid cycle of cuts must be carefully managed to avoid reigniting price pressures.

Outlook

With annual inflation now at its lowest level in over three years, the CBRT faces a critical decision point. While easing monetary policy could stimulate domestic demand, analysts caution that external dynamics — including global interest rate trends and energy price fluctuations — will remain decisive in shaping Turkey’s path.

As the PPK meeting approaches, investor focus will remain on whether the CBRT sticks with measured steps or accelerates cuts beyond expectations.