The monetary policy committee (MPC) of Turkey’s central bank on December 11 cut its main policy rate (one-week repo) by 150 bp to 38% in what was its final rate-setting meeting of 2025.

On December 3, bne Intellinews noted: “With the November inflation release, average market expectations will move up to 150-200bp from the previous 100-150bp.”

The central bank has not pushed its hand. It has kept to a cautious and market-friendly stance. Since its appointment in June 2023, Turkey’s "orthodox" economy management team has avoided causing tensions with the finance industry.

Corridor remains asymmetric

The authority also cut its overnight lending rate by 150bp to 41.0%, without fixing the symmetry of its so-called interest rate corridor as the overnight borrowing rate was also cut by 150bp to 36.5%.

The central bank occasionally scraps or limits one-week repo auctions to push local lenders to the overnight window for the sake of additional tightening within the interest rate corridor.

November surprise

In November, consumer inflation was lower than expected due to a downward surprise in food prices, the MPC said in its press release, adding: “Following an increase in September, the underlying trend of inflation declined slightly in October and November.”

Quarterly GDP growth turned out higher than projected in the third quarter, according to the MPC, which has also reiterated that leading indicators for the last quarter point to demand conditions continuing to support the disinflation process.

On December 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s consumer price index (CPI) inflation officially moved down to 31.07% y/y in November from 32.87% y/y in October.

TUIK also posted a monthly official inflation figure of 0.87% for November after releasing 2.55% for October, 3.23% for September, 2.04% for August, 2.06% for July, 1.37% for June, 1.53% for May and 3.00% for April.

Seasonally-adjusted at 1.50% m/m in November

On December 3, following the surprise in November inflation, bne Intellinews noted: “The November [seasonally adjusted inflation] will come in at a point even lower than the central bank’s 'a little above the 1%-level' target.”

This proved an incorrect call as 1.50% was released on December 4.

TUIK released average seasonally-adjusted monthly inflation of 2.62% for 3Q25 and it revised down this figure to 2.61% with the latest November release. The October release came in at 2.07% and it fell to 2.06% in the latest update.

The central bank had anticipated that the seasonally-adjusted monthly inflation figures would fall below the 1.5%-level starting from 3Q25 and end the year at a little above the 1%-level.

At 44% y/y at end-2024

Official inflation stood at 44% y/y at end-2024. It stayed at around 33% between July and October.

It is not advisable to plan, price or draw inferences based on TUIK data. There is widespread concern about the reliability of Turkey’s official data series.

9.5pp cut in 2025

The policy rate fell to 42.5% on March 6 from 50% on December 26, 2024. At end-2024, the rate stood at 47.5%.

After the jailing of Istanbul mayor and chief political opponent to Turkish President Recep Tayyip Erdogan, Ekrem Imamoglu, on March 19, the central bank hiked its policy rate to 46%.

On July 24, the MPC revived its monetary easing cycle by delivering a 300-bp rate cut. On September 11, it delivered a 250-bp cut. On October 23, a 100-bp cut was introduced.

About 31% at end-2025

In response to the November release, Turkey’s finance minister Mehmet Simsek (@memetsimsek) wrote on X on December 3 that another “moderate” monthly inflation figure can be expected for December.

On December 5, he said that the country looked set to release end-2025 inflation at around 31% y/y.

If TUIK releases official monthly inflation of 0.02% for December, end-2025 annual inflation will be posted at 30%.

On November 7, the central bank raised its end-2025 official inflation "forecast" range to 31-33% in its latest quarterly inflation report from the previously stated range of 25-29% that was provided in an August report.

January revision to solve "above-30%" deadlock

With the January 2026 data, the TUIK will change the base year in its official CPI series to 2025 from 2003. It will also employ wide-scope changes in its methodology and inflation basket.

The revision, which is entirely in line with Eurostat guidance, will most probably solve the "above-30%" deadlock.

Above 20% at end-2026

On February 12, the central bank will release its next quarterly inflation report, the first such report of 2026. It will include updated forecasts.

For end-2026, the authority’s “forecast range” remains unchanged at 13-19%, with the “interim target” standing at 16%.

In the February report, an upgrade is not expected for the end-2026 numbers, while it is almost certain that they will move up across the year.

As things stand, the realisation is supposed to come in at above the 20%-level.

January 22, expect first rate cut of 2026

On January 22, the MPC will hold its first rate-setting meeting of 2026. Another rate cut is a near certainty. Uncertainty, however, abounds as to the likely size of the cut.

As things stand, another 150-200bp cut is on the cards.

The central bank has yet to release its monetary policy guidance for 2026.

If it holds a total of nine rate-setting meetings in the coming year, as was the case in 2025, a 100-150bp rate cut on average per meeting and a combined cut of 1,000bp, which would bring the policy rate to 28% at end-2026, can be expected.

Bed of roses

The USD/TRY pair remains under control. Turkish borrowers’ eurobond auctions remained strong. Turkey’s five-year credit default swaps (CDS) have fallen below the 250-level. On the loans side, high debt rollover rates and low costs are observed.

After a local court dropped the case targeting the headquarters of the main opposition Republican People’s Party (CHP) on October 24, political stress that was bugging the finance industry dissolved.