Cautious Interest Rate Decision by Turkey’s Central Bank Signals Inflation Concerns

Turkey’s central bank took a cautious step on the interest rate, cutting the main policy rate by 100 basis points to 37 percent, a move that came below market expectations for a larger reduction.

This decision marks the fifth consecutive easing action since last summer, yet it reflects a more conservative approach to managing the interest rate amid persistent inflation risks linked to pricing behavior and expectations.

The monetary policy committee noted that while some improvement has been observed, inflation expectations remain a challenge, potentially hindering the disinflation process and requiring prudence in the interest rate path.

Official data showed annual consumer inflation at 30.9 percent in December, lower than forecasts due to falling food prices, though inflation readings are expected to become more volatile at the start of the new year.

Disinflation efforts may face further pressure from annual price adjustments and a 27 percent increase in the minimum wage for 2026, even as authorities reaffirm their commitment to lowering living costs and stabilizing prices over the medium term.