Turkey’s Overnight Lending Rate Eases to 42.50%: Implications and Outlook
Key Takeaways: Turkey’s Overnight Lending Rate fell to 42.50% in October 2025, down from 43.50% last month and well below the 53% average seen through much of 2024. This marks a continued easing trend amid persistent inflation and external pressures. Monetary policy remains tight but shows signs of gradual normalization. Financial markets reacted cautiously, reflecting geopolitical risks and fiscal challenges. Forward scenarios range from further easing to renewed tightening depending on inflation and currency stability.
Table of Contents
Turkey’s Overnight Lending Rate (OLR) dropped to 42.50% as of October 23, 2025, according to the latest data from the Sigmanomics database. This is a 1 percentage point decline from September’s 43.50% and a significant fall from the 53% level maintained for most of 2024. The easing reflects the central bank’s cautious approach to balancing inflation control with economic growth pressures amid a volatile external environment.
Drivers this month
- Inflation remains elevated but shows tentative signs of peaking around 45% YoY.
- TRY currency volatility has moderated slightly, reducing pressure on monetary tightening.
- Government fiscal deficits remain high but stable, limiting room for aggressive rate hikes.
Policy pulse
The current OLR of 42.50% remains historically high but is below the peak of 53% seen in 2024. The central bank appears to be signaling a gradual pivot from emergency-level rates toward a more sustainable stance, though inflation remains well above the 5% target.
Market lens
Immediate reaction: The Turkish lira (TRYUSD) strengthened modestly by 0.30% in the first hour post-release, while 2-year government bond yields declined by 15 basis points, reflecting cautious optimism about easing monetary conditions.
Core macroeconomic indicators provide essential context for the Overnight Lending Rate’s trajectory. Inflation in Turkey remains stubbornly high, with the latest CPI data showing a 44.80% YoY increase as of September 2025, down slightly from 46.20% in August. GDP growth slowed to an annualized 2.10% in Q3 2025, reflecting weaker domestic demand and external headwinds.
Inflation and growth
Despite the easing in the OLR, inflation remains nearly nine times the central bank’s 5% target. The slowdown in GDP growth signals that monetary tightening has begun to weigh on economic activity, though the pace is moderate compared to previous quarters.
Fiscal policy & government budget
Turkey’s fiscal deficit remains elevated at 5.80% of GDP, sustained by high government spending on social programs and infrastructure. The government’s borrowing needs continue to exert upward pressure on yields, complicating monetary policy efforts.
External shocks & geopolitical risks
Ongoing geopolitical tensions in the region and global commodity price volatility continue to impact Turkey’s risk premium. The TRY remains sensitive to shifts in global risk appetite, particularly given Turkey’s external debt exposure.
This chart highlights a clear trend of gradual monetary easing, reversing the sharp hikes of 2024. The rate’s decline signals the central bank’s confidence in inflation peaking and a desire to support growth. However, the rate remains high enough to contain inflation expectations and stabilize the currency.
Drivers this month
- Moderation in inflationary pressures, especially in food and energy prices.
- Improved TRY stability reducing the need for emergency rate premiums.
- Fiscal discipline signals from government budget management.
Policy pulse
The rate remains well above the 5% inflation target, indicating that monetary policy is still restrictive. The central bank’s gradual easing approach reflects a balancing act between taming inflation and avoiding a sharper economic slowdown.
Market lens
Immediate reaction: The TRYUSD currency pair gained 0.30%, while 2-year government bond yields fell by 15 basis points, signaling market approval of the rate cut as a sign of easing financial conditions without risking inflation resurgence.
Looking ahead, Turkey’s Overnight Lending Rate trajectory depends on inflation dynamics, currency stability, and external risks. We outline three scenarios with assigned probabilities:
Bullish scenario (30%)
- Inflation falls faster than expected toward 25% by mid-2026.
- TRY stabilizes with improved external balances.
- Central bank continues gradual rate cuts, reaching 35% by Q3 2026.
Base scenario (50%)
- Inflation remains sticky around 35-40% through 2026.
- TRY experiences moderate volatility but no sharp depreciation.
- Monetary policy remains tight with slow rate reductions to 40% by year-end 2026.
Bearish scenario (20%)
- Inflation spikes above 50% due to renewed external shocks or fiscal slippage.
- TRY weakens sharply, forcing the central bank to hike rates back above 45%.
- Economic growth contracts, increasing recession risks.
Monetary policy will remain data-dependent, with the central bank likely to prioritize inflation control while monitoring growth and currency risks. Fiscal discipline and geopolitical developments will be key external factors influencing the outlook.
Turkey’s Overnight Lending Rate easing to 42.50% marks a cautious shift in monetary policy after a prolonged tightening cycle. While inflation remains elevated, the central bank appears confident that peak inflation is behind it. Financial markets have responded positively but remain wary of geopolitical and fiscal risks. The coming months will test the durability of this easing trend amid ongoing external uncertainties.
Investors and policymakers should watch inflation trends, TRY exchange rate stability, and fiscal developments closely. The balance between supporting growth and containing inflation will remain delicate, with the Overnight Lending Rate serving as a critical barometer of Turkey’s macroeconomic health.
Key Markets Likely to React to Overnight Lending Rate
The Overnight Lending Rate in Turkey influences several key markets, including currency pairs, government bonds, and equities. The following symbols historically track or react to changes in this rate due to their sensitivity to Turkish monetary policy and economic conditions.
- TRYUSD – The Turkish lira’s USD exchange rate is directly impacted by interest rate changes, reflecting currency strength and inflation expectations.
- BIST100 – Turkey’s main stock index reacts to shifts in monetary policy affecting corporate borrowing costs and investor sentiment.
- AKBNK.IS – Akbank’s stock price is sensitive to interest rate changes due to its banking sector exposure.
- EURTRY – The euro-to-Turkish lira exchange rate reflects regional monetary policy differentials and geopolitical risk.
- BTCUSD – Bitcoin’s price often reacts inversely to emerging market rate hikes, as investors seek alternative stores of value.
Extras: Overnight Lending Rate vs. TRYUSD Since 2020
| Year | Overnight Lending Rate (%) | TRYUSD Exchange Rate (End-Year) |
|---|---|---|
| 2020 | 8.25 | 7.43 |
| 2021 | 19.00 | 13.50 |
| 2022 | 24.00 | 18.90 |
| 2023 | 43.00 | 27.30 |
| 2024 | 53.00 | 32.10 |
| 2025 (Oct) | 42.50 | 29.80 |
Insight: The table shows a strong positive correlation between the Overnight Lending Rate and TRYUSD depreciation. Rate hikes have historically accompanied TRY weakness, reflecting inflation and risk premium pressures. The recent rate easing coincides with a modest TRY recovery.
FAQ
- What is the Overnight Lending Rate in Turkey?
- The Overnight Lending Rate is the interest rate at which banks borrow funds overnight from the central bank, influencing overall monetary conditions in Turkey.
- How does the Overnight Lending Rate affect inflation?
- Higher Overnight Lending Rates typically tighten monetary conditions, reducing inflationary pressures by curbing demand and stabilizing the currency.
- Why is the Overnight Lending Rate important for investors?
- It signals the central bank’s stance on inflation and growth, impacting currency values, bond yields, and equity market sentiment.
Takeaway: Turkey’s Overnight Lending Rate easing to 42.50% signals a tentative shift toward monetary normalization amid persistent inflation and external risks. The central bank’s balancing act will shape Turkey’s economic trajectory in the coming year.
Author: Jane Doe, Senior Macro Analyst, Sigmanomics
Updated 10/24/25
Sources:
- Sigmanomics database, Overnight Lending Rate TR, October 2025 release
- Turkish Statistical Institute (TUIK), Inflation and GDP data, 2024-2025
- Central Bank of the Republic of Turkey, Monetary Policy Reports
- International Monetary Fund, Fiscal Monitor Reports
- Bloomberg, Market Data and Bond Yields
TRYUSD – Turkish lira to US dollar exchange rate, sensitive to monetary policy and inflation.
BIST100 – Turkey’s benchmark stock index, reflecting economic and policy shifts.
AKBNK.IS – Akbank shares, impacted by interest rate changes and banking sector health.
EURTRY – Euro to Turkish lira exchange rate, influenced by regional monetary policy.
BTCUSD – Bitcoin price, often inversely correlated with emerging market rate hikes.
The Overnight Lending Rate’s October reading of 42.50% compares to 43.50% in September and a 12-month average of 49.20%. This marks the fourth consecutive monthly decline from the peak of 53% maintained throughout most of 2024. The downward trend suggests a cautious loosening of monetary conditions after a prolonged period of aggressive tightening.
Compared to historical levels, the current rate remains elevated. For context, the rate was 46.50% in January 2025 and briefly touched 44% in March 2025 before rising again mid-year. The recent decline aligns with easing inflation pressures and a more stable TRY exchange rate.