Turkey's Central Bank Cuts Interest Rates by More Than Expected in Surprise Move

Turkey's central bank reduced the one-week repo rate to 43% from 46%, more than expected. The bank also lowered the overnight lending and borrowing rates. This signals policymakers' belief that Turkish markets have calmed after protests triggered by the arrest of Istanbul's mayor, Ekrem Imamoglu. The move aims to support disinflation and improve inflation expectations.

Turkey's central bank delivered a significant interest-rate cut, reducing the one-week repo rate to 43% from 46% on Thursday. The move, more than expected, signals that policymakers believe Turkish markets have stabilized after recent political turmoil [1].

The central bank also lowered the overnight lending rate to 46% from 49% and the overnight borrowing rate to 41.5% from 44.5%. The Monetary Policy Committee (MPC) stated that the tight monetary policy stance will support disinflation by moderating domestic demand, appreciating the Turkish lira, and improving inflation expectations [1].

The decision comes after a period of political unrest, triggered by the arrest of Istanbul Mayor Ekrem Imamoglu, a leading opposition figure. The central bank had previously raised rates to 46% from 42.5% in April, reversing an easing cycle that had begun in December [2].

Despite the political risks, Turkey's annual inflation slowed to 35.1% in June, approaching the central bank's year-end target of 24%. The bank expects a temporary rise in monthly inflation in July due to tax increases on goods, including fuel [1].

Economists anticipate further easing, with the policy rate potentially falling to 36% by the end of 2025. The monetary easing is expected to continue through at least the third quarter of 2026 [2].

The Turkish benchmark stock index rose following the rate cut, with the lira bonds paring earlier losses. The 10-year benchmark yield traded at 31.24%, and the currency was little changed [1].

References:
[1] https://www.bloomberg.com/news/articles/2025-07-24/turkey-central-bank-cuts-rates-for-first-time-since-march
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_APN3T6QAI:0-turkish-cenbank-returns-to-easing-with-big-300-point-rate-cut/