CBRT Signals Slower Disinflation, Says Demand Now at “Disinflationary Level”

Turkey’s central bank notes weakening momentum in price declines despite easing food inflation

The Central Bank of the Republic of Turkey (CBRT) said in its October 23 Monetary Policy Committee (MPC) minutes that recent data point to demand conditions now being consistent with disinflation, even as the pace of price declines has slowed.

While the Bank acknowledged some moderation in food prices, it warned that the overall inflationary trend remains elevated, requiring continued policy vigilance.

Global backdrop remains fragile

The CBRT noted that uncertainty in global trade policies remains high, even as global growth forecasts for 2025 show a “limited improvement.”

It projected Turkey’s export-weighted global growth index to rise 1.9% in 2025 and 2.3% in 2026, but cautioned that rising protectionism, fading front-loaded demand, and prolonged uncertainty continue to pose downside risks to the global growth outlook.

Oil prices were reported to be under pressure due to weak global demand, while non-energy commodity prices, especially industrial and precious metals, have maintained an upward trend.

Domestic lending slows amid lower interest rates

Between mid-September and mid-October, Turkish lira deposit rates fell by 82 basis points to 48.5%. During the same period:

• Commercial loan rates dropped 236 basis points to 47.9%,

• Consumer loan rates declined 211 basis points to 62.7%,

• Housing loan rates decreased 124 basis points to 37.9%, and

• Auto loan rates slumped 570 basis points to 36.3%.

The CBRT said the four-week average growth rate of personal loans slowed to 3.1%, mainly due to weaker credit card growth, while lira commercial loan growth rose modestly to 2.6%.

Reserves strengthen as risk indicators stabilize

The Bank’s gross international reserves increased by $20.6 billion between September 12 and October 17, reaching $198.4 billion.

Turkey’s 5-year credit default swaps (CDS) held steady at 267 basis points, while the lira’s one-month implied volatility eased to 10.5%, and the 12-month measure to 19.8%.

Foreign investors made a net portfolio inflow of $1.3 billion during the period, almost entirely concentrated in government bond markets.

Retail spending moderates, card use still rising

The minutes showed that retail sales volume rose 0.9% month-on-month and 1.8% quarter-on-quarter in August. Excluding gold, both increases were smaller, suggesting a slowdown in household spending.

Card-based transactions increased in August–September, though the CBRT noted that adjusted for the structural rise in card use, consumption growth appears more moderate.

White goods sales declined during the summer months, while auto sales fell in September following a sharp August surge — indicating a softer consumption trend in Q3.

ANALYSIS: Turkey’s Trade Deficit Widens Sharply in September as Imports Surge

Industrial output flat, construction continues to recover

Seasonally and calendar-adjusted data showed industrial production rose 0.4% month-on-month and 7.1% year-on-year in August.

The CBRT said that excluding volatile subsectors such as transport and heavy industry, manufacturing output slightly declined on a quarterly basis, confirming a weak industrial trend.

Leading indicators suggested that capacity utilization in manufacturing was stable in October, while construction output rose 5.1% quarter-on-quarter and a strong 24.5% year-on-year in Q3.

Labor market shows steady improvement

Seasonally adjusted employment stood at 32.8 million in August, up 0.5% quarterly, while labor force participation rose 0.1 points and unemployment fell 0.2 points to 8.3%.

Survey data, however, showed that employment expectations in manufacturing remain below historical averages, signaling caution among firms.

Current account surplus in August, gold imports rise in September

The current account posted a $5.5 billion surplus in August, bringing the 12-month rolling deficit down to $18.3 billion.

Tourism revenues reached $8.3 billion, 150 million higher than last year, helping the services balance surplus remain strong at $62.3 billion.

However, in September, exports fell and imports increased, leading to a wider trade deficit, the CBRT said. Gold imports jumped to $2.5 billion, raising the 12-month total to $21.7 billion.

Excluding gold, the deterioration in the trade deficit was limited, but the Bank expects a temporary rise in the current account deficit for September.

CBRT maintains cautious tone

“Recent data indicate that demand conditions are consistent with disinflation,” the MPC minutes said, adding that while progress continues, the pace of disinflation has slowed.

Analysts interpreted the statement as a sign that the CBRT will maintain a tight monetary stance until inflation shows a clearer downward path.

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