Turkey: Central Bank decreases rates in January
Central Bank cuts again: At its meeting on 22 January, the Central Bank of the Republic of Turkey (TCMB) reduced its 1-week repo rate from 38.00% to 37.00%. This was a smaller cut than markets expected but still brought rates to their lowest level since late 2023. Interest rates have now been cut by 900 basis points since last June.
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 the 1-week repo rate is still notably higher than inflation—meaning real interest rates are positive. Moreover, inflation has dropped nearly uninterruptedly since mid-2024, despite remaining high by global standards.
TCMB to cut rates further: Our panelists anticipate further monetary easing this year in line with declining price pressures. The spread among panelists’ end-2026 forecasts is large at nearly 1,000 basis points though, reflecting uncertainty over the outlook for inflation.
Panelist insight: On the outlook, Goldman Sachs analysts said:
“The slower cutting pace and absence of any signals regarding forthcoming macroprudential measures in the press release suggest that the TCMB may prefer to tighten financial conditions using interest rates, rather than loan growth caps, as we expect. […] Looking ahead, we continue to expect a gradual decline in core momentum, reflecting a slower rate of TRY depreciation and a further normalisation of monthly pricing distributions to bring inflation to 20.0%yoy by year-end, allowing the Bank to cut rates to 28.00%, though the risks to our rate view are to the upside after today’s decision.”