Turkey’s central bank cut its benchmark interest rate to 36 percent from 37 percent Thursday, its first reduction in nine months, citing easing inflation while warning that high energy prices remain a risk.
The Monetary Policy Committee, led by Central Bank Governor Fatih Karahan, lowered the one-week repo rate by 100 basis points, or 1 percentage point. The benchmark influences interest rates on loans and deposits.
The bank said recent data showed underlying inflation was slowing and that domestic demand remained weak. But geopolitical tensions were keeping energy prices high, threatening further progress in bringing inflation down.
The decision came after official annual inflation fell to 29.73 percent in September from 31.51 percent in August, dropping below 30 percent for the first time since November 2021.
Consumer prices rose 1.84 percent during September. The decline in annual inflation means prices are rising more slowly, offering limited relief to households facing years of increases in the cost of living. Prices in the housing, water, electricity, gas and other fuels category were nearly 40 percent higher than a year earlier.
The bank made no commitment to additional cuts, saying future decisions would depend on inflation data and expectations. The committee said it would tighten policy if the inflation outlook worsened significantly and persistently.
The central bank last cut its benchmark in January, lowering it from 38 percent to 37 percent. It then left the rate unchanged at five consecutive meetings, most recently holding it steady in September amid concerns over energy prices caused by the US-Israeli war on Iran.
The war, which began with US and Israeli attacks on Iran on February 28, has disrupted energy supplies and shipping through the Strait of Hormuz, a major route for global oil and gas trade. Turkey’s dependence on imported energy has left it exposed to higher costs.
Treasury and Finance Minister Mehmet Şimşek said in September that annual inflation would have been at least 7 percentage points lower without the war.
He said the conflict had driven up oil, natural gas and other commodity prices, slowing the government’s efforts to contain inflation.
Şimşek estimated that inflation would have ended 2026 at about 21 to 22 percent without the conflict. The government raised its year-end forecast to 28.4 percent in September, up from the 16 percent projected a year earlier.
Thursday’s cut could gradually ease borrowing costs for businesses and consumers, though the central bank said it would maintain the tight financial conditions needed to reduce inflation.
The bank also lowered its overnight lending rate to 39 percent from 40 percent and its overnight borrowing rate to 34.5 percent from 35.5 percent. It retained its medium-term inflation target of 5 percent.
Price increases remain substantially higher in independent estimates. The Inflation Research Group (ENAG) calculated annual inflation at 46.61 percent in September, compared with the official figure of 29.73 percent.
Turkey shifted toward higher interest rates after President Recep Tayyip Erdoğan’s re-election in 2023, reversing years of policies that favored low borrowing costs despite soaring inflation. The subsequent increases were intended to curb demand and support the currency.
The central bank’s next rate-setting meeting is scheduled for December 10.
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