📍Context
Following months of moderate disinflation, September data once again pointed to an acceleration:
consumer prices increased by 3.2% month-on-month, while the annual figure rose from 32.9% to 33.3%.
The key question is: will the Central Bank of the Republic of Türkiye (TCMB) continue its course of rate cuts or pause?
💰What the Central Bank Did
At its October meeting, the TCMB lowered the policy rate from 40.5% to 39.5%,
signaling that it views the September inflation spike as a temporary blip rather than a trend reversal.
The official statement reads:
“The disinflation process has slowed down, but it continues.”
However, the statement itself appeared contradictory:
in one paragraph, the Central Bank notes that "the underlying trend of inflation has increased,"
while in the next, it contends that "demand conditions remain disinflationary."
The market interpreted this as a signal of uncertainty—the regulator has fallen out of sync between its rhetoric and its actions.
⚙️ Why This Matters
1️⃣ Inflation has ceased to be linear.
Price growth in food and services is slowing unevenly, and the Central Bank, judging by its decision, has chosen to "buy time."
2️⃣ Monetary policy has reached the threshold of credibility.
If inflation does not decelerate as early as Q4, the TCMB risks facing a situation where every rate move is perceived as politically driven rather than analytical.
3️⃣ Interim targets are falling short.
The official year-end 2025 forecast stands at 24% inflation.
The current 33.3% rate makes this target barely realistic:
to achieve it, monthly price increases would need to remain under 1%, a pace the economy has not seen since 2021.
📊 Macroeconomic Context
• The policy of rate cuts since the summer of 2025 provided a short-term rebound in credit demand.
• Real interest rates are once again sliding into negative territory.
• The lira's exchange rate remains stable through administrative measures rather than market mechanisms.
• Fiscal expenditures remain high—the budget deficit continues to exert pressure on monetary policy.
🧭RelocationTR Commentary
The TCMB finds itself in a zone of managed risk:
compelled to balance between market credibility and political expectations of monetary easing.
For investors, this signals:
• short-term interest rate strategies (deposits, bonds) remain lucrative, but correction risks are escalating;
• corporate borrowers should utilize the window of lower rates through the end of 2025,
as a return to monetary tightening remains possible in 2026 if inflation accelerates;
• real estate developers and exporters must factor in a lira depreciation scenario in the first half of 2026.
⚖️ Conclusion
The Central Bank of Türkiye is trying to prove it can cut interest rates without losing control over inflation.
However, September exposed the limits of this strategy: market confidence depends on consistency, not rhetoric.
The TCMB has entered a treacherous bend.
If disinflation does not resume by January 2026,
the country will face a choice between mounting price growth and mounting distrust in its monetary policy.
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