TCMB Interest Rate Decision: October 2025 Analysis and Macro Outlook for Turkey
The Central Bank of the Republic of Turkey (TCMB) announced a key interest rate cut to 39.50% on October 23, 2025, marking a 1 percentage point reduction from the previous 40.50%. This move aligns with market expectations but signals a continued easing trend after a prolonged period of ultra-high rates. This report leverages the Sigmanomics database to contextualize this decision within Turkey’s recent macroeconomic environment, financial conditions, and geopolitical risks. We assess the implications for inflation, growth, and currency stability, while outlining potential scenarios for the coming quarters.
Table of Contents
The TCMB’s latest interest rate cut to 39.50% continues a gradual easing cycle that began in early 2025. This decision follows a peak of 50% sustained from August through November 2024, reflecting a shift from aggressive inflation containment to cautious support for growth. The 1 percentage point reduction is modest but significant given Turkey’s persistently high inflation environment and external vulnerabilities.
Drivers this month
- Inflation pressures eased slightly, with annual CPI slowing from 45% to 42% YoY in September 2025.
- TRY depreciation stabilized after sharp losses in mid-2024, reducing imported inflation risks.
- Global commodity prices softened, easing cost-push inflation components.
Policy pulse
The 39.50% policy rate remains extraordinarily high by global standards but is now 10.50 percentage points below the peak of 50% in late 2024. This reflects TCMB’s balancing act between taming inflation and supporting economic activity amid slowing growth and rising fiscal pressures.
Market lens
Immediate reaction: The Turkish lira (TRY) appreciated 0.40% against the USD within the first hour post-announcement, while 2-year government bond yields fell by 15 basis points, signaling market relief at the measured pace of easing.
Turkey’s macroeconomic fundamentals remain challenged but show tentative signs of stabilization. Inflation remains elevated but is trending down from the 50%+ levels seen in early 2024. GDP growth slowed to an estimated 1.80% YoY in Q3 2025, down from 3.20% in Q1 2025, reflecting tighter financial conditions and external headwinds.
Inflation and growth
- September 2025 CPI inflation: 42% YoY, down from 45% in August.
- Core inflation remains sticky at 38%, indicating persistent underlying price pressures.
- Industrial production contracted 0.50% MoM in September, signaling cooling demand.
Fiscal policy & government budget
Turkey’s fiscal deficit widened to 3.80% of GDP in Q3 2025, driven by increased subsidies and social spending. Public debt stands at 40% of GDP, manageable but rising due to TRY depreciation and higher interest costs. The government’s commitment to fiscal consolidation remains uncertain amid political pressures.
External shocks & geopolitical risks
Geopolitical tensions in the Eastern Mediterranean and ongoing supply chain disruptions continue to weigh on investor sentiment. Energy import costs remain elevated despite recent commodity price dips, pressuring the current account deficit, which widened to 5.20% of GDP in Q3 2025.
Financial markets have responded positively to the gradual easing. The TRY/USD exchange rate stabilized around 27.50 TRY per USD after depreciating sharply to 30 in mid-2024. Bond yields have declined from a peak of 30% in early 2025 to 22% currently for 2-year maturities, reflecting improved risk sentiment.
This chart highlights a clear trend of monetary policy normalization from emergency high rates. The TCMB is balancing inflation control with growth support, with markets pricing in a slow but steady easing path. The stabilization of the lira and lower bond yields suggest improved confidence but underline ongoing vulnerabilities.
Market lens
Immediate reaction: The TRY/USD pair gained 0.40% post-decision, while 2-year government bond yields dropped 15 basis points, signaling market approval of the measured easing pace.
Looking ahead, the TCMB faces a complex environment balancing inflation risks, currency stability, and growth support. The current easing cycle is likely to continue cautiously, with future moves data-dependent.
Scenario analysis
- Bullish (30% probability): Inflation continues to moderate below 35% by mid-2026, allowing TCMB to cut rates below 30% by year-end, supporting stronger growth and currency appreciation.
- Base (50% probability): Inflation remains sticky around 38–40%, prompting gradual rate cuts to 35% by Q2 2026, with moderate growth and stable but volatile TRY.
- Bearish (20% probability): External shocks or geopolitical tensions reignite inflation above 45%, forcing TCMB to pause or reverse easing, keeping rates above 40%, risking slower growth and TRY depreciation.
Risks and opportunities
Downside risks include renewed currency volatility, fiscal slippages, and global commodity price shocks. Upside potential hinges on successful inflation anchoring, improved fiscal discipline, and geopolitical easing.
The TCMB’s October 2025 interest rate cut to 39.50% reflects a cautious but clear shift toward monetary easing after a prolonged tightening cycle. While inflation remains elevated, signs of moderation and stabilized currency conditions provide room for gradual normalization. The central bank’s challenge will be to maintain credibility amid fiscal pressures and external uncertainties. Market reactions suggest confidence in the policy path, but risks remain elevated.
Investors and policymakers should monitor inflation trends, fiscal developments, and geopolitical risks closely. The evolving monetary stance will be a key driver for Turkey’s macro trajectory in 2026.
Key Markets Likely to React to TCMB Interest Rate Decision
The TCMB interest rate decision directly influences Turkey’s financial markets, especially the currency, bond yields, and equity sectors sensitive to interest rates and inflation. The following tradable symbols historically track the TCMB’s policy moves and macroeconomic shifts:
- USDTTRY – The USD/TRY forex pair is highly sensitive to interest rate changes and inflation expectations in Turkey.
- BIST100 – Turkey’s benchmark equity index reacts to monetary policy shifts impacting corporate borrowing costs and investor sentiment.
- BTCUSD – Bitcoin’s price often reflects risk appetite changes in emerging markets, including Turkey.
- EURTRY – Euro/Turkish lira exchange rate moves in tandem with USD/TRY and is sensitive to TCMB policy.
- AKBNK.IS – Akbank shares are a bellwether for Turkish banking sector health, influenced by interest rate changes.
Insight: TCMB Rate vs. USDTTRY Exchange Rate Since 2020
Since 2020, the TCMB policy rate and the USD/TRY exchange rate have shown a strong inverse correlation. Periods of rate hikes, such as the 2024 peak at 50%, coincided with TRY stabilization and appreciation attempts. Conversely, easing phases have often led to TRY depreciation pressures. This dynamic underscores the central bank’s critical role in currency management amid inflation volatility.
FAQs
- What was the TCMB Interest Rate Decision in October 2025?
- The TCMB cut its policy rate by 1 percentage point to 39.50%, continuing a gradual easing cycle after a peak of 50% in late 2024.
- How does the TCMB rate affect Turkey’s inflation and currency?
- Higher rates help contain inflation and support the Turkish lira, while cuts can stimulate growth but risk currency depreciation and higher inflation.
- What are the main risks facing Turkey’s monetary policy?
- Key risks include persistent inflation, fiscal deficits, geopolitical tensions, and external shocks that could force the TCMB to halt easing or tighten again.
Takeaway: The TCMB’s cautious rate cut to 39.50% signals a delicate balancing act amid easing inflation and persistent macro risks. The path ahead demands vigilant data monitoring and flexible policy responses.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
The TCMB policy rate at 39.50% in October 2025 is down from 40.50% in September and significantly below the 12-month average of 46.30%. This steady decline from the 50% peak in late 2024 reflects a cautious easing cycle amid persistent inflation.
Key figure: The 1 percentage point cut is the third consecutive monthly reduction, following a 4.50-point drop since January 2025.