Summary of the Monetary Policy Committee Meeting (2025-28)
No: 2025-28
April 25, 2025
Summary of the Monetary Policy Committee Meeting
Meeting Date: April 17, 2025
Global Economy
1. Lingering uncertainties regarding global trade policies have further increased following the protectionist steps taken in the recent period, and risks to the global economy and financial markets have become pronounced. Such developments continue to affect the global growth outlook negatively. While growth projections for many advanced and emerging economies have been revised downwards, the growth rate expectation for the global growth index, which is weighted by the export shares of Türkiye’s foreign trade partners, has been updated from 2.1% to 1.7% for 2025, and from 2.4% to 1.9% for 2026. The deterioration in the global demand outlook has led to sharp declines in commodity prices, most visibly in natural gas and oil. The future course of US trade policies and possible retaliation by other countries, coupled with ongoing geopolitical risks, are seen as prominent risk factors for the course of global trade and economic activity.
2. While the expected effects of tariff hikes on inflation may differ across countries, inflation expectations have slightly increased in advanced economies, particularly in the US. Accordingly, it is expected that the decline in global inflation will slow down and central banks will maintain their cautious approach in rate cuts. The risk appetite decreased markedly due to increased global uncertainties in this period, and portfolio outflows from emerging markets continued.
Monetary and Financial Conditions
3. Turkish lira (TRY) deposit rates rose by 275 basis points compared to the week ending March 7, and stood at 51.9% as of the week ending April 11. In the same period, TRY commercial loan rates (excluding overdraft accounts and credit cards) increased by 449 basis points to 54.9%. General-purpose loan rates (excluding overdraft accounts) were up by 555 basis points to 69.7% while housing loan rates fell by 26 basis points to 39.6%, and vehicle loan rates rose by 26 basis points to 43.0%.
4. The average four-week growth rate of retail loans was down to 2.3% in the March 7-April 11 period. This decline resulted from the deceleration in credit card growth while there was a rise in the growth of all consumer loan subcomponents during this period. The average four-week growth rate of TRY commercial loans increased to 3.6% from 1.7%. Consistent with the 0.5% growth limit applied to foreign currency (FX) loans, the average four-week growth rate of FX commercial loans adjusted for exchange rates dropped from the 2.0% level of the previous MPC meeting period to 0.4%.
5. With a decision taken on March 28, a type of general-purpose loan to consumers, namely the overdraft loans, which were exempt from the loan growth limits were started to be included under the loan growth-based reserve requirement practice, conditional on having, more than three installments (excluding expenditures on education and training). Additionally, the scope of investment loans exempted from the FX loan growth limit was revised.
6. The gross international reserves of the CBRT decreased by USD 22.4 billion since March 7 to USD 147.5 billion as of April 11. Türkiye's five-year credit default swap (CDS) premium reached 343 basis points on April 16, posting an increase since March 5. The one-month implied exchange rate volatility of the Turkish lira rose to 18.9% as of April 16 while the 12-month implied exchange rate volatility increased to 26.1%. Since the previous MPC meeting week, net portfolio outflows have totaled USD 7.5 billion, comprising USD 6.3 billion of outflows from the government domestic debt securities (GDDS) market and USD 1.1 billion from the stock market.
Demand and Production
7. In February, the retail sales volume index recorded monthly and quarterly increases of 1.1% and 3.7%, respectively. In the same period, the trade sales volume index increased by 2.5% month-on-month and by 0.8% quarter-on-quarter. The services production index, which provides insight into both the production of services and their demand, decreased by 2.0% in February. On a quarterly basis, following a rise of 0.9% in the last quarter of the previous year, the index went up by 2.9% in the first quarter of the year. After declining in January, card spending showed a limited recovery in February and picked up in March, especially in the second half of the month due to the seasonally increased demand in the run-up to Eid al-Fitr. Limited data for the first week of April suggest a monthly decline and a flat quarterly outlook. White goods sales declined in the first quarter while automobile sales remained on the rise, albeit at a slower pace. In the same period, survey data for manufacturing firms indicate that domestic market orders posted a slight increase below the previous quarter's rise. Accordingly, leading indicators point to a level of domestic demand above projections despite some loss of momentum in the first quarter, suggesting a lower disinflationary impact.
8. In February, the industrial production index decreased by 1.6% month-on-month when adjusted for seasonal and calendar effects and by 1.9% year-on-year when adjusted for calendar effects. On a quarterly basis, industrial production rose by 0.9% in the first quarter as of February. Excluding typically volatile sectors in order to monitor the underlying trend, the fall in industrial production in February was more moderate at 1.1% while the quarterly increase of 1.5% outpaced the rise in the main index. Survey indicators for the manufacturing industry point to a flat outlook in the underlying trend of industrial production in the first quarter of 2025. In this period, the manufacturing industry capacity utilization rate dropped by 0.5 percentage points quarter-on-quarter. Meanwhile, the index of production in construction, still buoyed by the quake-driven construction activities, rose by 10.3% in quarterly terms in the first quarter of the year as of February and by 13.8% compared to the same period of the previous year.
9. In February, seasonally adjusted employment stood at 32.3 million people, declining by 1% on a quarterly basis. In this period, the labor force participation rate went down by 0.7 percentage points quarter-on-quarter, and the unemployment rate fell by 0.3 percentage points to 8.3% in the first quarter as of February Survey indicators suggest an outlook lagging behind historical averages for manufacturing firms' future employment expectations in the first quarter of 2025.
10. In February, the current account balance posted a monthly deficit of USD 4.4 billion while the 12-month cumulative current account deficit stood at USD 12.8 billion, with a month-on-month increase of USD 1.1 billion. These figures were mainly led by the widening gold and energy trade deficits, despite the rising services balance surplus. In fact, during this period, the 12-month cumulative services balance surplus remained robust and reached USD 62.0 billion. The announcement of additional tariffs to be imposed by the US in early April and the subsequent developments significantly increased the uncertainty regarding trade policies. These developments have created some uncertainty on Türkiye's foreign trade deficit through channels such as the weakening in global growth, the resulting decline in energy and commodity prices, increased competition in foreign markets, and the rise in parity in favor of the euro.
11. In March, seasonally adjusted exports and imports posted an increase. The rise in exports was more robust as deliveries were brought forward in the run-up to Eid al-Fitr. The 12-month cumulative data reveal that the foreign trade deficit posted a limited decline compared to the previous month. Accordingly, the 12-month cumulative current account deficit is projected to narrow in March. Gold imports amounted to USD 1.6 billion in March and to USD 18.5 billion in cumulative terms. Seasonally adjusted imports of consumption goods, which had declined in the previous two months, rebounded in March and remained above historical averages. Excluding the jewelry imports, which have recently contributed significantly to the rise in consumption goods imports, consumption goods imports increased slightly compared to the previous month. When the foreign trade data for March is considered along with the high-frequency leading data for April, the three-month average trends point to a flat course in exports due to the end of the holiday-related volatility, and a limited increase in imports. High-frequency data imply a more moderate level of jewelry imports and a flat course in consumption goods imports excluding jewelry on a monthly basis in April.
12. Regarding the financing of the current account deficit, the banking sector’s 12-month cumulative long-term debt rollover ratio hovered around 152% in February. In the non-bank corporate sector, this ratio was around 130%. Accordingly, external financing opportunities remain at high levels, nevertheless debt rollover ratios may decline in the upcoming period as FX-denominated borrowing declines and economic activity slows down.
Inflation Developments and Expectations
13. In March, consumer prices were up by 2.46% while annual inflation fell by 0.95 percentage points and stood at 38.10%. Annual inflation in the B and C indices declined by 2.48 and 2.79 percentage points to 36.99% and 37.42%, respectively. Contributions to annual inflation were up in food and alcohol-tobacco-gold groups but down in services, core goods, and energy groups. In seasonally adjusted terms, monthly consumer inflation increased month-on-month driven by unprocessed food while monthly consumer inflation excluding food edged down.
14. Core goods inflation followed a relatively low course in March while the weakening trend in services inflation continued. Price increases in durable consumption goods remained moderate. Monthly inflation in the services sector slowed across subgroups while prices in transport services posted a decline. Developments in consumer prices in March were led by the food group, and monthly inflation in this group strengthened due to unprocessed food. This was mainly driven by the rise in fresh fruits and vegetables prices due to adverse weather conditions, while the rise in meat prices due to Ramadan was also noteworthy. Energy prices remained flat in March, as the decline in fuel prices due to the fall in global crude oil prices was offset by the rise in municipal water prices.
15. The underlying trend of inflation decreased in March. In seasonally adjusted terms, monthly rise in the B index weakened while that in the C index remained flat. During this period, among the components of the B index, price increases accelerated in core goods while they slowed in services and particularly in processed food. In March, the distribution-based and the model-based indicators point to a flat course in the median inflation, and to a decline in the other underlying trend indicators.
16. As of March, the seasonally adjusted average price increase over the last three months slowed down both in core goods (1.45%) and the services sector (3.85%), compared to the previous month. In the services excluding rents, this rate decreased to 3.48%.
17. The prevalent price-setting behavior in the services sector leads to significant inertia and causes the impact of shocks on inflation to extend over a long time period. Against this background, services inflation remains higher than goods inflation. Price increases in the services group, which accelerated in January due to time-dependent factors, displayed a significant downtrend in February and March. Although the monthly rent inflation decreased to 3.39% due to the seasonal decline in contract renewal rates and the slowdown in rent increase in contracts, it is still high and it stood out among services. Monthly inflation in services excluding rents also slowed down to 1.55%. In this period, seasonally-adjusted monthly inflation decelerated in communication, rents, transport and restaurants-hotels groups but increased in other services sub-group compared to the previous month. Monthly inflation in the communication services slowed down significantly while the decline in transport services prices was driven by intercity transportation.
18. Leading indicators monitored via the micro data of the Retail Payment System (RPS) suggest that the monthly rents inflation will slow down in April. The decrease in contract renewal rates due to seasonal effects as well as the downtrend in the rate of increase in rents in new and renewed contracts continues, albeit at a slower pace. Meanwhile, rates of rent increases in new and renewed contracts obtained from RPS micro data and those monitored through residential property valuation reports are below the current annual inflation in the rent item of the consumer price index (CPI) and the decline continues.
19. In March, domestic producer prices rose by 1.88%, and annual inflation continued the downtrend dropping by 1.71 percentage points to 23.50%. Thus, annual producer inflation came down to the lowest levels that has been recorded since 2021. Across main industrial groupings, the energy group curbed headline producer inflation in March while other main groups recorded monthly price increases of more than 2%, mainly due to developments in the Turkish lira. The recent relatively low course of producer inflation affects prices of goods favorably for consumers.
20. In March, international commodity prices posted a decline. Across subcategories, prices fell both in energy and non-energy commodities, with the energy group in the lead. Among non-energy commodities, agricultural commodity prices were notable with a decline about 6%. On the other hand, the FAO food price index remained relatively flat in March. The first half of April reveals a considerably accelerated decline in commodity prices led by the energy group. Due to the expected slowdown in global economy amid the rise in tariffs and accompanying uncertainty, commodity prices, particularly crude oil, registered a significant decline. Brent crude oil prices, which were USD 72.6 on average in March, fluctuated around USD 65 after April 4. Potential effects of the rising protectionism in global trade on the disinflation process through global economic activity, commodity prices and capital flows are closely monitored.
21. The Global Supply Chain Pressure Index remained slightly below its historical average in March. Container indices for the globe and China decreased in March while dry cargo transport indices recorded an uptick. In March, the basket exchange rate increased, more apparently in the euro rate. The seasonally adjusted manufacturing industry PMI data point to a weakening both in input prices and goods prices in March.
22. Recent developments in financial markets had a negative impact on inflation expectations. According to the results of the Survey of Market Participants in April, the year-end inflation expectation for 2025 rose by 1.9 percentage points to 30.0%. The inflation expectation for end-2026 was revised upwards by 1.2 percentage points to 20.3% and expectations increased also for other terms. The 12-month and 24-month-ahead inflation expectations were revised by 1.0 percentage points and 0.6 percentage points to 25.6% and 17.7%, respectively. Meanwhile, the five-year-ahead inflation expectation edged up by 0.1 percentage points and was measured at 11.1%. According to the expectations of the real sector, the 12-month-ahead annual inflation expectations of firms, which were 41.9% in February, declined by 0.8 percentage points to 41.1% in March. In the same period, the 12-month-ahead annual inflation expectations of households remained unchanged at 59.3%. Inflation expectations and pricing behavior continue to pose risks to the disinflation process.
23. Leading indicators suggest an increase in the underlying trend of inflation for April. Monthly core goods inflation is expected to rise slightly in April due to recent developments in financial markets, while services inflation is likely to remain relatively flat. Durable consumption goods with high exchange rate pass-through, such as automobiles, have recorded price increases. The seasonally adjusted services inflation, on the other hand, remains relatively flat after showing a weak trend in the recent period. Transport prices in the services group are expected to rise in April after falling in the previous month. Unprocessed food prices, which were high in March, remained more moderate in the first weeks of April due to the correction in vegetable prices. However, the agricultural frost that hit the country widely in April has increased the upside risks to the prices of fresh fruits and vegetables, mainly fruits, for the period ahead. Leading indicators suggest that price increases in the other unprocessed food group continue to be driven by red meat and egg items. In the energy group, effects of the increase in electricity tariffs for dwellings are discernible while the slowing effect on fuel prices of crude oil prices, which have declined significantly due to global developments, limited the group's price increase to some extent.
Monetary Policy
24. On March 20, the Monetary Policy Committee (the Committee) held an Interim Meeting to evaluate the financial market developments that took place in the respective week. Assessing the risks that these developments may pose to the inflation outlook, measures were taken to support the tight monetary stance. Accordingly, the Committee decided to raise the Central Bank overnight lending rate to 46 % from 44%, and to keep the policy rate (the one-week repo auction rate) and the overnight borrowing rate at 42.5% and 41%, respectively. Moreover, as indicated in the Interim Meeting Summary of March 27, TL and FX liquidity measures were introduced to limit market volatility. The CBRT began to conduct TL-settled foreign exchange forward selling transactions to ensure the sound functioning of the foreign exchange market, to prevent possible volatilities in exchange rates and to stabilize foreign exchange liquidity. Besides, the maturity of deposit auctions was extended up to eight weeks, liquidity tools were diversified, and it was decided to issue liquidity bills with maturities up to 91 days. Additionally, the Bank suspended the one-week repo auctions for a period of time and provided funding mainly at overnight maturity, leading the CBRT funding cost to realize close to the overnight lending rate.
25. At its meeting on April 17, the Committee decided to raise the one-week repo auction rate from 42.5% to 46%. The Committee also increased the Central Bank overnight lending rate from 46% to 49% and the overnight borrowing rate from 41% to 44.5%.
26. The decisiveness regarding tight monetary stance is strengthening the disinflation process through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations. Going forward, increased coordination of fiscal policy will also contribute significantly to this process. The tight monetary stance will be maintained until price stability is achieved via a sustained decline in inflation. Accordingly, the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path taking into account realized and expected inflation, and the underlying trend. The Committee will adjust the policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook. Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.
27. In response to the recent developments in financial markets, additional measures to support the monetary transmission mechanism were swiftly put in place. Liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively.
28. The CBRT decided to resume the one-week repo auctions that were suspended on March 20.
29. Taking into account the lagged effects of monetary tightening, the Committee will make its policy decisions so as to create the monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5% inflation target in the medium term. Accordingly, all monetary policy tools will be used decisively. The Committee will make its decisions in a predictable, data-driven and transparent framework.