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CBRT Cuts Policy Rate by 250 bps to 40.5%

CBRT

The Central Bank of the Republic of Türkiye (TCMB) surprised markets with a larger-than-expected rate cut, lowering its policy rate by 250 basis points to 40.5% following the September meeting of the Monetary Policy Committee (PPK).

The move comes after July’s 300 bps cut, showing that the bank continues to ease despite sticky inflation and market concerns.

Key Policy Rate Changes

  • Policy Rate (one-week repo): cut from 43% → 40.5%

  • Overnight lending rate (upper band): cut from 46% → 43.5%

  • Overnight borrowing rate (lower band): cut from 41.5% → 39%

This was the second consecutive rate cut, deepening the easing cycle that resumed in July after months of tight monetary policy.

Market Expected a Smaller Cut

Ahead of the meeting, consensus pointed to a 200 bps cut.

  • AA Finans Survey (26 economists): Median expectation: -200 bps

  • Goldman Sachs: Revised its forecast from -350 bps to -200 bps, citing stronger-than-expected growth and sticky inflation.

  • JP Morgan: Also predicted -200 bps, pointing to annual inflation near 33% and monthly CPI above 2%.

By delivering -250 bps, the TCMB once again leaned toward bolder easing than global investors expected.

TCMB’s Rationale

In its statement, the Bank said the underlying trend of inflation slowed in August, while domestic demand remained subdued at dezenflation-supportive levels. However, risks remain:

  • Food prices and sticky services inflation still pressure headline CPI.

  • Inflation expectations, pricing behavior, and global factors continue to pose challenges.

The Committee reaffirmed that:

“If inflation diverges significantly from interim targets, the monetary policy stance will be tightened again.”

The Bank pledged to maintain tight financial conditions until price stability is achieved, using liquidity tools and macroprudential measures when necessary.

Why This Cut Matters

  • Inflation is still running in the 30%+ range.

  • Rate cuts risk undermining credibility with foreign investors.

  • But the government’s Medium-Term Program (OVP) assumes growth will hold steady while inflation gradually eases toward 28.5% by end-2025.

Analysts warn that with domestic demand cooling and foreign direct investment weak, the Bank faces a balancing act: stimulating growth without destabilizing the lira.

Looking Back: July’s Cut

On 24 July, the TCMB cut rates by 300 bps to 43%, a larger step than most had anticipated. That move set the tone for September’s decision—showing policymakers are willing to move more aggressively than market consensus.

Key Takeaways

  • Policy rate slashed to 40.5%, deeper than expected.

  • Markets predicted -200 bps, TCMB delivered -250 bps.

  • Inflation risks remain: food and services prices still sticky.

  • TCMB signals it may tighten again if inflation worsens, but easing bias continues.

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