The monetary policy committee (MPC) of Turkey’s central bank on September 11 cut its main policy rate (one-week repo) by 250 bp to 40.5%. The move was largely in line with expectations, which foresaw a rate reduction of between 200 bp and 300 bp.

The authority also cut its overnight lending rate by 250bp to 43.5%, without fixing the symmetry of its so-called interest rate corridor as the overnight borrowing rate was also cut by 250bp to 39.5%.

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.

Comes on top of 300 bp in July

On July 24, the central bank revived its monetary easing cycle by delivering a 300-bp rate cut that brought the policy rate to 43%.

Since July 25, the authority’s weighted average cost of funding has fallen to 43% from 46%. In parallel, market rates (TLREF) also fell into the 42%s, closer to 43%.

Funding and market rates are now supposed to approach 40.5% in the coming few days.

October and December cuts on horizon

On October 23, the authority will hold its next rate-setting meeting. As things stand, another rate cut is almost certain. The size of the cut, though, is not certain.

Rate cuts of 300 bp made at the next two meetings would bring the one-week repo to 34.5% while 200-bp cuts would mean 36.5% at end-2025. Two more 250bp cits would deliver 35.5%.

As things stand, the realisation will come in somewhere between 34.5% and 36.5% depending on the course of the official inflation releases.

33% y/y in August

On September 3, TUIK said that Turkey’s consumer price index (CPI) inflation officially stood at 32.95% y/y in August versus 33.52% y/y in July and 44% y/y at end-2024.

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.

Around 30% at end-2025

TUIK is set to release end-2025 official inflation at around 30%. The goal is to provide a figure that stands below the 30%-level. Getting there will depend on developments in the last quarter of the year.

On August 14, Turkey’s central bank raised its end-2025 official inflation "forecast" range to 25-29% in its latest quarterly inflation report.

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

For July, 2.65% was released, while 2.47% was released for August. A sharp decline may be on the way in the September release, albeit it is the beginning of the new school year and actual prices always rise at this time.

On November 7, the central bank will release its next and last quarterly inflation report for this year.

Moment of truth ahead in political showdown

On September 2, the Istanbul 45th (Asliye Hukuk) civil court of first instance triggered another round of political stress in Turkey by appointing a board of trustees to take over the main opposition Republican People’s Party’s (CHP’s) provincial headquarters in Istanbul.

As of September 11, the CHP continued to show restrained reactions. CHP officials were circulating a ruling by the Ankara 3rd civil court of first instance. They say they are sure that the ruling annulled the Istanbul 45th court’s ruling.

It will take just a little while longer until it becomes undeniable to the CHP that the trustees remain in post.

In a few days, the moment of truth will arrive.

On September 15, the next hearing in a trial concerning the November 2023 CHP national party congress, which is being conducted by the Ankara 42nd (Asliye Hukuk) civil court of first instance, is to be held.

Borsa Istanbul fluctuating wildly

The Borsa Istanbul has fluctuated wildly in the face of the series of rulings issued by the various courts.

Domestic lira bonds are also under stress, but the Treasury has already filled its coffers ahead of what will almost certainly turn out to be a very shaky second half of September.

The eurobond market has sent the message that it could not care less about the stark political developments. The USD/TRY remains under control.