The Central Bank of the Republic of Turkey cut its one-week repo rate by 150 basis points to 40.50% at its September 2025 monetary policy meeting, continuing a carefully managed easing cycle as disinflation in the Turkish economy gathered momentum. The Monetary Policy Committee cited continued progress in bringing inflation down as the rationale for the reduction, pointing to a Turkish consumer price index that had declined to approximately 40% on an annual basis.
The cut is the latest step in a policy normalisation process that began after the CBRT reached its peak rate in a tightening cycle designed to restore the credibility of Turkish monetary policy following a prolonged period of unconventional low-rate settings. The shift to orthodox inflation-targeting under successive finance ministry and central bank leadership teams has been closely watched by international investors and credit rating agencies as a test of Turkey's commitment to macroeconomic stability.
DISINFLATION DRIVES THE EASING CYCLE
Turkish CPI at approximately 40% remains high by international standards, but the trajectory matters as much as the absolute level to policymakers managing an easing cycle. The direction of travel — from peak inflation rates that exceeded 85% in late 2022 — represents a substantial reduction in the inflationary pressure that had eroded real incomes and business planning horizons across the Turkish economy. The CBRT has framed each successive rate reduction as a measured response to verified disinflation rather than a pre-emptive loosening.
The 150 basis point increment is consistent with the pace of reductions that the committee has employed at recent meetings, signalling a preference for gradual and predictable easing over large, market-surprising adjustments. Gradualism reduces the risk of reigniting inflation expectations, which remain sensitive in Turkey given the country's history of price instability. The committee's communication has emphasised that the pace and scale of future cuts will be determined by incoming inflation data and the trajectory of underlying price pressures.
Core inflation, which strips out the more volatile food and energy components, has also been on a declining path, providing the committee with additional confidence that the disinflation process is broad-based rather than driven purely by base effects or temporary commodity price movements. A sustained reduction in core inflation is necessary before the CBRT can consider accelerating the pace of easing without risking a premature loosening.
MARKET IMPLICATIONS AND FURTHER OUTLOOK
With the policy rate now at 40.50%, Turkish lira-denominated assets continue to offer some of the highest nominal yields available in emerging markets, attracting carry-trade interest from international investors despite the currency risk inherent in Turkish lira positions. The CBRT's success in maintaining a credible disinflation narrative has helped support the lira in recent months, reducing the frequency and severity of the sharp depreciation episodes that characterised earlier periods of high inflation.
Turkish commercial banks will adjust their lending and deposit rates in response to the cut. Mortgage and consumer loan rates have been declining alongside policy rates, supporting a modest recovery in credit demand. However, the absolute level of rates remains restrictive enough to keep credit growth in check, which the CBRT considers important to avoid demand-driven inflation re-acceleration.
The committee gave no specific forward guidance on the timing or scale of future rate decisions, maintaining its data-dependent approach. Markets will focus on forthcoming CPI releases to gauge whether disinflation continues at a pace sufficient to justify additional cuts in the final quarter of 2025. If inflation continues to decline in line with the CBRT's projections, analysts anticipate further reductions at subsequent meetings, potentially bringing the policy rate closer to 35% by year-end.