Central Bank of Turkey Announces First Interest Rate Decision of the Year

Policy Rate Cut Below Expectations

The Central Bank of the Republic of Turkey (CBRT) has announced its January interest rate decision. The Monetary Policy Committee (MPC) cut the one-week repo policy rate by 100 basis points, lowering it to 37 percent. Market expectations had pointed to a larger, 150 basis point cut.

Alongside the policy rate decision, the CBRT reduced the overnight lending rate from 41 percent to 40 percent, while the overnight borrowing rate was lowered from 36.5 percent to 35.5 percent.

Economists’ median expectation for the policy rate by the end of the year stands at 28 percent. At the previous MPC meeting in December 2025, the policy rate had been reduced by 150 basis points to 38 percent.

Inflation Developments and Outlook

In its decision statement, the Central Bank noted that the underlying trend of inflation declined in December. However, preliminary indicators suggest that monthly consumer inflation is expected to rise in January, mainly driven by food prices. The increase in the underlying inflation trend is assessed to be limited.

Recent data for the final quarter indicate that, although the support from demand conditions to the disinflation process has weakened, it continues. Inflation expectations and pricing behavior show signs of improvement, yet they remain a risk factor for the disinflation process.

Commitment to Tight Monetary Policy

The CBRT emphasized that its tight monetary policy stance will be maintained until price stability is achieved. This stance is expected to strengthen the disinflation process through demand, exchange rate, and expectations channels.

The Committee stated that future policy rate decisions will be determined in line with inflation realizations, the underlying trend, and inflation expectations, ensuring the level of monetary tightness required by the disinflation path. The size of future steps will be reviewed cautiously, on a meeting-by-meeting basis, with a clear focus on the inflation outlook. Should inflation deviate significantly from interim targets, monetary policy will be tightened.

Liquidity and Financial Conditions

The CBRT underlined that credit and deposit markets will be closely monitored. If developments occur outside the projected framework, additional macroprudential measures will be implemented to support the monetary transmission mechanism. Liquidity conditions will continue to be closely observed, and liquidity management tools will be used effectively.

The Committee reaffirmed its commitment to setting policy decisions in a way that will achieve the 5 percent inflation target in the medium term, within a predictable, data-driven, and transparent framework.

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