The Turkish central bank cut its benchmark, one-week repo rate by 100 basis points to 39.5% on Thursday, citing an increase in the underlying trend of inflation in September and flagging “a slowdown” in the disinflation process.

The Central Bank of the Republic of Türkiye (CBRT) met the market expectations for a slower reduction this month in the face of a surprise uptick in inflation after months of declines.

At its previous meeting in September, the bank had already tapped the brakes with a 250-point cut in the face of higher-than-expected inflation and heightened political risk. A 300-point cut was made in the meeting before that, in July.

The bank on Thursday also lowered the overnight lending rate from 43.5% to 42.5% and the overnight borrowing rate from 39% to 38%.

“The underlying trend of inflation increased in September,” the central bank said in its statement after its Monetary Policy Committee (MPC) meeting.

“While recent data suggest that demand conditions are at disinflationary levels, they also point to a slowdown in the disinflation process,” it said.

“The risks posed by recent price developments, particularly in food, to the disinflation process through inflation expectations and pricing behavior have become more pronounced,” it added.

The lira was little changed at 41.9850 versus the greenback after the announcement.

In a Reuters poll, the majority of 17 economists forecast a cut in the one-week repo rate, with the median forecast being a 100 basis-point cut. Four economists expected rates to be unchanged.

“The step size is reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” the bank also said, repeating that its policy stance will be tightened in case the inflation outlook deviates significantly from interim targets.

The bank in August switched to a new system by introducing interim targets, separating them from its inflation forecast ranges in a new strategy aimed at boosting transparency and confidence. It set the inflation target for this year at 24%, even though it is forecasting inflation of between 25% and 29%.

Annual inflation ticked up slightly to 33.29% in September, breaking a long declining trend observed since the middle of 2024 and triggering predictions of a slowdown in the monetary easing cycle. Economists’ expectations varied from no cut to a 250-basis-point cut this month, although most anticipated the bank would lower rates by 100 or 150 basis points.

“It’s basically in line with the adjusted market expectations (of a smaller cut following the September inflation print), so it should be enough not to scare the market at this stage,” said Kieran Curtis, head of EM local currency debt at fund manager Aberdeen.

Earlier in April, the CBRT hiked rates to 46%, reversing an easing cycle that had begun in December, following market volatility over the March arrest of Istanbul Mayor Ekrem Imamoğlu.

While economists expected a slowdown in easing this month, they also expect rate cuts to likely continue in this year’s last meeting in December.


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