Turkey: Central Bank decreases rates in December
Central Bank cuts again: At its meeting on 11 December, the Central Bank of the Republic of Turkey (TCMB) reduced the 1-week repo rate from 39.50% to 38.00%, a larger cut than markets expected. Since June, interest rates have now been cut by 800 basis points.
Improved inflation dynamics motivate rate cut: The TCMB likely eased its monetary stance to spur the economy, and felt it had room for maneuver since inflation in the 1-week repo rate is still notably higher than inflation—meaning real interest rates are positive. Moreover, inflation was lower than expected in November and has dropped 13 percentage points so far this year.
TCMB to cut rates further: Our panelists anticipate further monetary easing next year in line with declining price pressures. The spread among panelists’ end-2026 forecasts is large at 1200 basis points though, reflecting uncertainty over the outlook for inflation.
Panelist insight: ING’s Muhammet Mercan commented:
“While the bank emphasised that future rate decisions will remain data-driven and assessed on a meeting-by-meeting basis, it provided little clarity regarding near-term rate actions. In this context, inflation expectations, the outcome of the 2026 minimum wage negotiations, and the anticipated adjustment to automatic tax rates – promised by Finance Minister Mehmet Simsek – will be key for the outlook, alongside considerations regarding dollarisation and reserve levels, in our view.”
Goldman Sachs analysts said:
“With inflation running above the Bank’s projections, we expected the TCMB to continue with a 100bp cut to signal its ongoing commitment to maintaining a tighter policy stance than previously assumed. While we think that monetary policy is currently transmitted mainly through loan growth caps rather than interest rates, rates remain an important signalling tool. Amid de-anchored expectations, we believe that [the] accelerated cutting pace could challenge the TCMB’s gradually strengthening credibility, increasing the likelihood that persistent inertia will keep inflation at elevated levels particularly beyond 2026.”