The Central Bank of the Republic of Türkiye (CBRT) announced Thursday that it has cut its benchmark policy rate, lowering the one-week repo auction rate from 43% to 40.5% as inflation shows signs of moderation.

The Monetary Policy Committee (MPC) also trimmed the overnight lending rate from 46% to 43.5% and the overnight borrowing rate from 41.5% to 39%. In its statement, the CBRT said the move reflects “cautious optimism” that underlying inflationary pressures are easing, but emphasized that a tight monetary stance will remain until price stability is secured, reiterating its medium-term goal of 5% inflation.

The MPC noted that the pace of price increases slowed in August, despite lingering pressures from food prices and high-inertia service items. Second-quarter GDP growth came in above expectations, but a softening in domestic demand has contributed to disinflationary conditions.

“Monetary tightening continues to support demand moderation, exchange rate stability, and the improvement in inflation expectations,” the committee said. “The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook.”

The CBRT warned that significant deviations from the projected disinflation path could trigger a return to tighter policy measures if necessary. Liquidity conditions and macroprudential policies will also be closely monitored to ensure smooth monetary transmission.

The rate cut marks a pivot from the CBRT’s aggressive tightening cycle launched in mid-2023 to counter inflation, which peaked at over 85% in late 2022. Since Governor Fatih Karahan’s appointment in early 2024, the central bank has pursued a more orthodox policy mix, hiking rates to restore credibility and stabilize the lira.

The July 2025 decision to hold rates at 43% signaled caution, but the latest cut suggests growing confidence that Türkiye is on a sustainable disinflation path. Recent data shows headline inflation cooling to around 60%, down from 71.6% earlier this year.

Economists and market watchers called the 250-basis-point reduction a measured but bold step.

Public reaction was divided on social media platform X, with some welcoming relief for borrowers and businesses, while others warned of potential premature easing given global economic uncertainty.

The MPC’s full meeting minutes will be released within five working days, offering further insight into the CBRT’s strategy. Analysts expect the central bank to continue balancing growth considerations with the need to keep inflation expectations anchored. (ILKHA)