In recent years, the Central Bank of the Republic of Turkey (CBRT) has implemented a policy of high interest rates as a means to combat inflation – with the aim of bringing inflation down from double-digit figures to more stable, single-digit levels. With inflation now heading down, the CBRT is preparing to initiate a new interest rate cutting cycle.
A highly anticipated policy shift
This policy shift is not only viewed as a sign of confidence, but is eagerly awaited by the real sector, which has been under pressure from high borrowing costs. Lower interest rates are expected to provide financial relief to Turkish businesses, enhance investment, and support economic growth.
The official policy interest rate currently stands at 46%, while the annual inflation rate has dropped to 35%. The gap between interest and inflation rates shows the Central Bank’s commitment to achieving real positive yields. A gradual and data-dependent easing of monetary policy appears not only feasible but also necessary.
The return to a rate-cutting cycle, once inflation expectations are firmly set, could play an important role in revitalising domestic demand, supporting credit expansion, and sustainable economic development.
GRAPH 1. INFLATION RATE TARGETS
The CBRT is expecting a significant improvement in inflation, according to its most recent forecasts. The Bank has set a year-end inflation target of 24% for 2025, with a further decline down to 12% projected in 2026.
Looking to 2027–2028, single-digit inflation is considered possible, marking a turning point in Turkey’s macroeconomic adjustment process. Based on this, the CBRT has signalled its intention to gradually reduce interest rates in alignment with disinflation.
This easing is in line with global monetary trends. Major central banks such as the U.S. Federal Reserve (FED) and the European Central Bank (ECB) already introduce interest rate cutting cycles in response to slowing inflation.
The Turkish Central Bank is prioritising interest rate reductions as part of a medium-term strategy to support growth and to restore financial conditions to sustainable levels (Graph 1).
A policy pivot not without obstacles
This policy pivot has not been without obstacles. Political tensions and externally driven crises have led to extended periods of high interest rates. During this period, maintaining tight monetary policy was necessary to reign inflation in and to stabilise prices. The CBRT appears confident that the worst of the inflationary pressures has decreased.
As a result, the CBRT is preparing to enter a careful rate-cutting cycle. This policy shift is designed to reflect improvements in inflation, as well as to stimulate domestic investment, ease financing restrictions on the real sector, and to boost economic recovery.
Following global monetary easing trends
Simply, Turkey’s monetary authorities are moving towards a more accommodative position based on domestic improvements and global monetary easing trends. If inflation continues to decline as expected, the environment could soon be suitable to more aggressive easing of policy rates, which would support further Turkey’s transition to sustainable and low-inflation growth.
Istanbul 
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