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Turkey's central bank cuts policy rate to 36%, first cut in nine months

Turkey's central bank cuts policy rate to 36%, first cut in nine months

Money Moves

The 100-basis-point cut ends five straight holds as annual inflation cools below 30%.

Today: Central bank cuts rate to 36%

Overview

Updated 1 hour ago

Turkey's central bank cut its policy rate by 100 basis points to 36% on Thursday, the first reduction in nine months. The move ends five consecutive holds and opens what analysts expect to be a gradual easing cycle.

The cut follows September inflation of 29.7%, the first reading below 30% since late 2021. The bank warned that elevated energy prices from the Middle East conflict pose an upside risk. Domestic demand remains weak, giving the bank room to ease.

Why it matters

If the easing cycle continues, Turkish borrowing costs fall through 2027 — but a geopolitical shock could force the bank to reverse course.

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Key Indicators

36%
Policy rate after cut
One-week repo rate, down from 37%.
29.73%
Annual inflation, September
First reading below 30% since late 2021.
5
Consecutive holds before cut
Rate held at 37% from January to October.
35%
ING year-end forecast
ING expects another 100bp cut in December.

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People Involved

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Timeline

January 2026 October 2026

6 events Latest: Today
Tap a bar to jump to that date
  1. Central bank cuts rate to 36%

    Today Monetary Policy

    100bp cut ends nine-month pause; overnight rates also lowered.

  2. Fund market disruption response

    Regulatory

    Regulators act after investment fund disruption; central bank boosts repo financing.

  3. Inflation falls below 30%

    Economic Data

    September inflation hits 29.73%, first sub-30% reading since 2021.

  4. Repo auctions resume

    Monetary Policy

    Central bank resumes one-week repo auctions, cutting liquidity cost by 300bp.

  5. Iran war begins

    Geopolitical

    Conflict starts; central bank holds rates at 37% through it.

  6. Central bank cuts rate to 37%

    Monetary Policy

    Last cut before the pause; rate set at 37%.

Scenarios

1

Central bank cuts again in December, rate hits 35% by year-end

Likely Resolves by End of 2026

Discussed by: ING

ING expects another 100bp cut at the December meeting, bringing the rate to 35% by year-end. The bank's forward guidance shifted emphasis to the magnitude and timing of future steps, signaling continued easing unless conditions change materially.

2

Geopolitical shock halts easing as energy prices spike

Possible Resolves by End of 2026

Discussed by: TCMB statement, Al Jazeera

The bank warned that elevated energy prices from the Middle East conflict pose an upside risk to inflation. If Brent crude stays near $110 per barrel or the Iran war escalates, the bank could hold rates at 36% in December.

3

Faster easing if inflation undershoots

Unlikely Resolves by End of 2026

Discussed by: Market consensus

If inflation falls faster than expected and domestic demand weakens further, the bank could cut by more than 100bp in December or signal a steeper path for 2027.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

June 2023 - March 2024

Turkey's 2023-2024 pivot to orthodox policy

After Erdoğan's re-election, the central bank under new governor Hafize Gaye Erkan hiked rates from 8.5% to 50% in nine months, reversing years of low-rate policy. Finance Minister Mehmet Şimşek led the shift toward orthodox economics.

Then

Inflation peaked above 75% in mid-2024 before beginning a steady decline.

Now

The program restored some credibility but left inflation expectations unanchored.

Why this matters now

The current easing cycle is the next phase of this program — the bank is now unwinding the tight policy it built in 2023-2024.

2018

2018 Turkish currency crisis

The lira lost about 40% of its value against the dollar amid tensions with the US over a detained pastor. The central bank hiked rates to 24% in September 2018 to defend the currency.

Then

The hike stabilized the lira temporarily.

Now

Erdoğan's pressure on the central bank continued, leading to years of low rates and high inflation.

Why this matters now

Shows how quickly geopolitical shocks can force Turkish monetary policy to reverse, a risk the bank now flags with energy prices elevated.

Sources

(11)