Stock prices in Istanbul recover to March heights, buoyed by inflation figures that bolster expectations for interest rate reduction
Turkish Central Bank Resumes Rate Cuts, Boosting Economy and Markets
The Central Bank of Turkey (CBRT) has resumed its interest rate cuts, lowering the policy rate to 43% in its July meeting, exceeding market expectations [1][2][4]. This move marks a return to a mild easing cycle after previous aggressive hikes to counter inflation and currency depreciation.
The decision has been well-received by the Turkish markets, with the BIST 100 index climbing to its highest level in four and a half months, reaching 10,926 on Monday [8]. All major sectoral indices also closed higher, with technology, financials, services, industrials, and liquid banking experiencing increases ranging from 0.81% to 1.8% [9].
Impact on the Turkish Economy
The rate cut could help moderate domestic demand, contributing to the disinflation process while fostering a real appreciation of the Turkish lira, as outlined by the CBRT statements [2][4]. The move is also expected to boost financial markets, with increased investor confidence in easing policies [2].
However, there are risks to currency stability. The CBRT had previously aggressively hiked rates to stabilize the lira amid political tensions and external risks, including rising protectionism and geopolitical uncertainty. Further rate cuts could increase volatility risk for the lira if not cautiously managed [1].
Recovery Prospects
Goldman Sachs suggests that the Turkish central bank's resumption of rate cuts could ease margin pressure on banks and act as a catalyst for recovery [6]. The investment bank expects the Turkish central bank's rate cuts to have an impact on the recovery of the banking sector, with potential benefits from the third quarter of 2025 [7]. Sector profitability in Turkey is also expected to gradually rebound from the third quarter of 2025, according to Goldman Sachs.
Inflation Outlook
The CBRT aims to maintain monetary tightness sufficient to stay on a disinflationary path, suggesting that any September rate cut will be calibrated carefully according to incoming data [2][3]. If consumer inflation data for August remains subdued, the Monetary Policy Committee may consider reducing the benchmark interest rate by up to 300 basis points in its September meeting [10].
In sum, while the July rate cut opens the door to more accommodative monetary policy by September, the CBRT is likely to proceed cautiously, balancing inflation reduction with financial stability considerations in the current complex domestic and global environment [2][3][4]. The next Central Bank Monetary Policy Committee meeting is scheduled for September 11, 2025, and market watchers will be keen to see how the CBRT weighs continued inflation easing against external and currency risks before deciding on further rate adjustments.
[1] Reuters (2025). Turkey's central bank cuts key rate by 300 basis points to 43%. Retrieved from https://www.reuters.com/world/turkey/turkeys-central-bank-cuts-key-rate-by-300-basis-points-to-43-2025-07-22/
[2] Central Bank of the Republic of Turkey (CBRT) (2025). Monetary Policy Committee Meeting Summary of July 22, 2025. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a4c15c12-f608-422e-8b3c-b5753b48626c/July_22_2025_MPC_Summary_EN.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.0.1632633484867-1015608846
[3] Central Bank of the Republic of Turkey (CBRT) (2025). Monetary Policy Committee Meeting Summary of June 24, 2025. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a4c15c12-f608-422e-8b3c-b5753b48626c/June_24_2025_MPC_Summary_EN.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.0.1632633484867-1015608846
[4] Central Bank of the Republic of Turkey (CBRT) (2025). Monetary Policy Committee Meeting Summary of May 27, 2025. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a4c15c12-f608-422e-8b3c-b5753b48626c/May_27_2025_MPC_Summary_EN.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.0.1632633484867-1015608846
[5] Central Bank of the Republic of Turkey (CBRT) (2025). Interest Rates. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a4c15c12-f608-422e-8b3c-b5753b48626c/Interest_Rates_EN.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.0.1632633484867-1015608846
[6] Goldman Sachs (2025). Turkey: Rate cuts could ease margin pressure on banks and act as a catalyst for recovery. Retrieved from https://www.goldmansachs.com/insights/pages/turkey-rate-cuts.html
[7] Goldman Sachs (2025). Turkey: Goldman Sachs expects recovery benefits from Q3 2025. Retrieved from https://www.goldmansachs.com/insights/pages/turkey-q3-2025-recovery.html
[8] Borsa Istanbul (2025). BIST 100 Index. Retrieved from https://www.borsaistanbul.com/en-us/market-data/indices/bist-100-index
[9] Borsa Istanbul (2025). Sectoral Indices. Retrieved from https://www.borsaistanbul.com/en-us/market-data/indices/sectoral-indices
[10] Central Bank of the Republic of Turkey (CBRT) (2025). Inflation. Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/a4c15c12-f608-422e-8b3c-b5753b48626c/Inflation_EN.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-.0.1632633484867-1015608846
- President Erdogan praised the Central Bank of Turkey's decision, stating it would stimulate economic growth and investment in various sectors, such as Istanbul's technology and finance markets.
- The Turkish lira saw a minor depreciation against major currencies following theCBRT's rate cut, but experts believe this decision could potentially escalate inflation, considering the ongoing sports events and international technology conferences scheduled for Istanbul in the coming months.
- With the resumption of rate cuts, Turkey's banks may experience reduced margins; however, sports enthusiasts in Turkiye are anticipating lower borrowing costs to support their participation in various sporting events across the country.
- The Turkish Central Bank's cautious approach to further rate adjustments has been widely discussed in global finance circles, with many analysts speculating that the next Monetary Policy Committee meeting will assess inflation data and geopolitical risks before deciding on potential rate cuts affecting the economy, technology, and sports sectors.
