Turkey’s central bank has implemented its third interest rate cut since December, citing declining inflation and slower domestic demand as key reasons for the decision.
On March 6, the monetary policy committee reduced the benchmark lending rate by 250 basis points, bringing it down from 45% to 42.5%—a move that was widely anticipated following better-than-expected inflation data for February.
Inflation Drops, Paving the Way for Further Cuts
Turkey’s consumer price index fell to 39% in February, marking its lowest level since mid-2023 and a notable improvement from 42% in January.
In its announcement, the central bank noted that leading indicators suggest domestic demand has maintained its disinflationary trend into the first quarter of 2025. However, policymakers also expressed caution:
“While inflation expectations and pricing behavior are improving, they continue to pose risks to the disinflation process.”
Experts Call for Further Rate Cuts
Ayhan Zeytinoğlu, chairman of the Economic Development Foundation (IKV) and the Kocaeli Chamber of Industry, welcomed the rate reduction but emphasized that further cuts are necessary to stimulate investment.
“Lower interest rates are a positive step, but they are still too high to make investments attractive,” Zeytinoğlu said.
Despite this, he described the move as “a good indicator” that signals a shift toward a more favorable monetary policy.
What’s Next for Turkey’s Inflation and Interest Rates?
Looking ahead, analysts expect continued improvements in inflation, with May and June likely to bring further progress due to the base effect.
“If inflation continues to decline as projected, we expect it to close the year within the 25-26% range,” Zeytinoğlu added.
In February, the central bank adjusted its year-end inflation forecast, raising it from 21% to 24%, while maintaining its 2026 target of 12%.
With economic conditions gradually stabilizing, all eyes remain on mid-year interest rate decisions to determine whether Turkey can maintain its path toward lower borrowing costs and sustainable growth.
