Turkey’s central bank should keep its policy interest rate at 37 percent because the country’s investment fund crisis has damaged confidence and created risks for banks and companies, an economic think tank recommended on Tuesday.
A cut of 2 percentage points, to 35 percent, would have been possible without the crisis, according to an October monetary policy assessment published by the Economic Policy Research Foundation of Turkey (TEPAV).
The recommendation comes before the central bank’s next interest rate decision on Thursday, following its decision to keep the benchmark unchanged at its September 10 meeting.
The fund crisis erupted in mid-September when some investment funds, which pool investors’ money to buy shares and other assets, could not meet withdrawal requests amid investigations into suspected market manipulation.
The Capital Markets Board (SPK), Turkey’s securities regulator, ordered the liquidation of 131 funds managed by seven companies on September 17, requiring their assets to be sold or distributed to repay investors.
The funds had 455,758 individual investors, some of whom have since received payments, and liquidation has been completed for 66 funds, leaving 65 still undergoing the process.
The crisis could lead to more unpaid bank loans, leave companies short of cash and weaken their finances, TEPAV’s monetary policy working group warned.
The group urged the central bank to seek measures through the government’s financial stability committee to limit those risks and take the loss of market confidence into account when setting interest rates.
It also called for scrutiny of why institutions responsible for preventing such crises had failed to do so despite having the necessary legal powers.
The warning follows the resignation on Monday of SPK Chairman Mahmut Sütçü, who cited health concerns, days after prosecutors received authorization to investigate his predecessor over the scandal.
TEPAV identified the fund crisis and an October 15 decision by MSCI, whose stock indexes guide investment decisions worldwide, as sources of risk for Turkey’s economy.
MSCI froze certain changes to its Turkish stock indexes, preventing new additions and some increases in companies’ representation, after investors raised concerns about coordinated trading and the reliability of information on shares available for public trading.
The financial turmoil comes as Turkey struggles to reduce inflation, which stood at an annual 29.73 percent in September, with consumer prices rising 1.84 percent from August.
Annual inflation fluctuated between 29.7 and 33.5 percent from July 2025 through September, showing how little progress had been made over that period, the assessment found.
The working group expects inflation to exceed the government’s revised year-end target and considers the 21 percent target for the end of 2027 difficult to achieve because of shortcomings in the economic program and approaching elections.
It also criticized a mismatch between the government’s 21 percent target for 2027 and the central bank’s 15 percent target, retained in its August inflation report, arguing that conflicting goals weakened confidence in monetary policy.
The assessment called for tax reform, measures to reduce unregistered economic activity, changes to public spending and a review of government revenue guarantees to support efforts to bring inflation down.
It also urged legal safeguards against political interference in the central bank and the agencies overseeing banking, securities markets and official statistics, along with reforms to strengthen the rule of law and the courts.
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