FX.co ★ Turkey Cuts Interest Rate by 300bps

In its July 2025 meeting, the Central Bank of Turkey reduced its benchmark interest rate by 300 basis points to 43%, exceeding market expectations, which anticipated a more modest reduction to 43.5%. This decision reversed the majority of the 350 basis point increase implemented in April, a move made necessary by rising geopolitical tensions that had led to a sharp devaluation of the lira, thereby challenging the central bank's mechanisms for stabilizing the currency. Despite the latest data indicating no change in the core inflation trend, the central bank observed that the elevated borrowing costs had amplified the disinflationary impact of demand conditions. Additionally, the Central Bank of the Republic of Turkey (TCMB) highlighted that heightened global economic uncertainty and the resurgence of protectionist trade policies posed further risks to economic growth, justifying the need to lower borrowing costs. Concurrently, the central bank also reduced the overnight borrowing rate and the overnight lending rate by 300 basis points, setting them at 46% and 41.5%, respectively.