CBRT Cuts Interest Rate to 43% in First Easing Move Since March

In a surprise policy shift, the Central Bank of the Republic of Turkey (CBRT) reduced its benchmark interest rate by 300 basis points, lowering it to 43% during the July 2025 Monetary Policy Committee (MPC) meeting. This marks the first interest rate cut since March, following a series of tightening measures aimed at curbing inflation.

The decision was detailed in a statement released after the meeting, which also included adjustments to other short-term rates:

• Overnight lending rate was cut from 49% to 46%

• Overnight borrowing rate was lowered from 44.5% to 41.5%

Inflation Outlook and Policy Justification

The CBRT noted that the underlying inflation trend remained flat in June, but monthly inflation in July is expected to rise temporarily due to seasonal factors. Despite this, domestic demand appears to be exerting a disinflationary effect.

Citing ongoing geopolitical risks and rising global trade protectionism, the Bank stated it would closely monitor the potential implications of these dynamics on the disinflation process. It warned that inflation expectations and price-setting behavior continue to pose risks to achieving stability.

“The tight monetary stance will be maintained until inflation is firmly under control,” the Bank affirmed. It added that exchange rate stability, balanced demand, and improved inflation expectations are essential to sustaining disinflation.

Market Reaction and Forecast Divergence

While the central bank’s decision was more aggressive than expected, it did not completely surprise the markets. Pre-meeting polls by Bloomberg and Reuters, involving 20 participants, had forecast a 250 basis point cut to 43.5%. The actual cut of 300 points was slightly steeper, but largely within the range of expectations.

Background: Political Events and Previous Policy

The policy rate had been held steady at 46% since April, following a sharp 500 basis point hike in response to political turbulence. That hike came in the wake of the arrest of Ekrem İmamoğlu, Mayor of Istanbul, which had unsettled financial markets and prompted the CBRT to shore up confidence through aggressive tightening.

In June, the Bank had opted to pause rate changes, signaling a period of policy stabilization. With inflation showing signs of moderation and demand cooling, the CBRT has now opted to initiate easing, while still emphasizing a data-driven, cautious approach.

Next Steps

The CBRT pledged to remain transparent and forward-looking, noting that its tight monetary policy would continue until inflation aligns with its medium-term 5% target. If inflation expectations worsen, the Bank stated it would deploy all available tools to protect stability.

A summary of the meeting will be published within five business days.