Summary of the Monetary Policy Committee Meeting (2025-49)
No: 2025-49
September 18, 2025
Summary of the Monetary Policy Committee Meeting
Meeting Date: September 11, 2025
Global Economy
1. Uncertainties regarding global trade policies remain high. However, the moderate improvement in the global growth outlook has continued. The global growth index, which is weighted by the export shares of Türkiye’s foreign trade partners, is projected to increase by 1.9% in 2025 and 2.3% in 2026. While the deterioration in the global demand outlook and supply-side developments continue to weigh on crude oil prices, energy commodity prices have declined during the current MPC period. On the other hand, non-energy commodity prices rose somewhat led by precious metal prices. Uncertainties about the trade and economic policies that the U.S. and other countries will pursue in the upcoming period and heightened geopolitical risks are seen as prominent risk factors for the course of global economic activity.
2. While risks to inflation remain prevalent globally, central banks continue to cut interest rates in light of these risks. Although portfolio inflows into emerging markets continue, elevated levels of global uncertainties and geopolitical developments keep downside risks to portfolio flows alive.
Monetary and Financial Conditions
3. Turkish lira (TRY) deposit rates dropped by 242 basis points compared to the week ending July 25 and stood at 50.1% as of the week ending September 5, driven by expectations of a policy rate cut in September. In the same period, TRY commercial loan rates (excluding overdraft accounts and credit cards) decreased by 265 basis points to 50.2%. General-purpose loan rates (excluding overdraft accounts) increased by 49 basis points to 65.7%, housing loan rates fell by 262 basis points to 39.3%, and vehicle loan rates dropped by 300 basis points to 42%.
4. The average four-week growth rate of retail loans rose to 3.3% in the July 25 – September 5 period. This increase resulted from the rise in credit card growth. The average four-week growth rate of TRY commercial loans decreased from 3% to 2.3%. The average four-week growth rate of foreign currency (FX) commercial loans adjusted for exchange rates stood at 0.7%, above the previous MPC period level.
5. A series of amendments have been introduced to the macroprudential framework to support the monetary transmission mechanism during the current MPC period. As of August 16, 2025, credit growth rates for extended loans are calculated on an eight-week cycle instead of a four-week cycle. As of August 23, 2025, the opening and renewal of KKM accounts (excluding YUVAM accounts) have been terminated. As of August 29, the commission rates based on renewals and transition to Turkish Lira have been discontinued. Effective as of September 26, the commission rates applied according to the Turkish lira share have been increased from 3% to 4% for real persons, and from 1.5% to 2% for legal persons. As per the Official Gazette of August 7, 2025, the criteria for defining small and medium-sized enterprises (SMEs), namely the annual net sales revenue or financial balance sheet amount, has been raised from TRY 500 million to TRY 1 billion. Lastly, necessary amendments were made to ensure that this decision is reflected in growth limits for loans extended as of August 15, 2025.
6. The gross international reserves of the CBRT increased by USD 8.3 billion since July 25 and reached USD 180.1 billion as of September 5. Türkiye's five-year credit default swap (CDS) premium declined since July 23, standing at 267 basis points as of September 10. The 1-month and 12-month implied exchange rate volatility of the Turkish lira rose to 10.4% and 20.2%, respectively, as of September 10. Since the previous MPC meeting week, the change in non-resident investors' positions has remained limited in the stock market while net portfolio inflows have totaled USD 1.0 billion, almost all of which was directed towards the government domestic debt securities (GDDS) market.
Demand and Production
7. In the second quarter of 2025, Gross Domestic Product (GDP) increased by 4.8% year-on-year and 1.6% quarter-on-quarter, surpassing growth projections. Concurrent with the release of second-quarter data, the Turkish Statistical Institute (TURKSTAT) introduced a major revision to national accounts system. The revision had the greatest impact on the agricultural sector on the production side, as well as private consumption expenditures and stocks items on the expenditures side. Several other changes were also made, such as the more effective and comprehensive use of administrative data, the overall improvement of calculation methods, and the review of models for seasonal and calendar adjustments. Based on revised data, the services sector was the main driver of annual growth in the second quarter by the production approach while the industrial sector's contribution turned positive. The construction sector also supported growth. By the expenditure approach, annual growth in private consumption and total investments accelerated. Final domestic demand made the largest contribution to annual growth. As in the first quarter, private consumption declined in the second quarter on a quarterly basis. Rebounding from a drop in the first quarter, total investments grew in the second quarter, driven by construction and machinery-equipment investments. Final domestic demand thus limited quarterly growth. Accordingly, while GDP growth was above projections in the second quarter, final domestic demand remained weak. Meanwhile, exports declined amid global trade uncertainties and the limited recovery in the global growth outlook, and net exports had a dampening impact on growth due to brought-forward imports.
8. In July, the retail sales volume index recorded a monthly decrease of 0.2% and a quarterly increase of 1.2%. Excluding gold, the index displayed a limited rise on a monthly basis and a rise close to the growth rate of the main index on a quarterly basis. Thus, the growth rate of retail sales decelerated. In the same period, the trade sales volume index decreased by 6.5% month-on-month and by 3.2% quarter-on-quarter, mainly due to the significant decrease in wholesale trade. The services production index decreased by 0.5% in June. On a quarterly basis, following a rise of 3.1% in the first quarter of the year, the index remained flat in the second quarter. Card spending increased in the July- August period. However, excluding the impact of the recent surge in card usage rate, consumption expenditures were more moderate. White goods sales decreased in the June-July period while automobile sales rose on a quarterly basis due to the acceleration in August. Survey data for manufacturing firms indicate that the weak course of registered domestic market orders continued in the third quarter. In sum, recent data indicate that demand conditions are at disinflationary levels.
9. In the second quarter, the industrial sector’s value added increased by 6.1% year-on-year and by 2.3% quarter-on-quarter, pointing to a stronger industrial activity compared to the first quarter. In this context, industrial value added diverged from industrial production growth that slowed in the second quarter. During this period, the highest contributions to the quarterly increase in industrial production came from other transportation and similar sectors that typically display volatility, which may partially explain the divergence between industrial production indicators and the value-added indicator included in the GDP. In July, the industrial production index decreased by 1.8% month-on-month when adjusted for seasonal and calendar effects, and increased by 5.0% year-on-year when adjusted for calendar effects. On a quarterly basis, industrial production posted a limited decline of 0.3% in the third quarter as of July. Excluding typically volatile sectors, such as other transportation and similar sectors, in order to monitor the underlying trend, the decline in industrial production was more limited on a monthly basis, however, the decline was higher on a quarterly basis. Survey indicators for the manufacturing industry point that activity in the manufacturing industry remained relatively weak in the third quarter. The manufacturing industry capacity utilization rate continued to decrease in the July-August period and dropped by 0.9 percentage points compared to the second quarter. Meanwhile, the index of production in construction showed a moderate rise of 0.8% in quarterly terms in the second quarter, but rose by 19.6% compared to the same period of the previous year.
10. In July, seasonally adjusted employment stood at 32.6 million people, increasing by 0.2% on a quarterly basis. In this period, the labor force participation rate decreased by 0.3 percentage points quarter-on-quarter, and the unemployment rate decreased by 0.4 percentage points to 8.0%. Survey indicators suggest that the outlook lagging behind historical averages for manufacturing firms' future employment expectations has persisted in the third quarter of 2025 as well.
11. In June, the current account balance posted a monthly deficit of USD 2 billion. The 12-month cumulative current account deficit increased by USD 2.8 billion month-on-month and stood at USD 18.9 billion. With the impact of the holiday season, travel revenues reached USD 6 billion on a monthly basis, exceeding the previous years’ figures by USD 0.4 billion. During this period, travel revenues stood at USD 58.1 billion in 12-month cumulative terms while the services balance surplus remained robust and reached USD 62.1 billion.
12. In August, seasonally adjusted exports and imports decreased, and the 12-month cumulative foreign trade deficit narrowed compared to the previous month. While factory holidays were influential in the weak course of exports in this period, the fall in exports and the monthly decline in energy prices were the primary drivers of the relatively stronger decrease in imports. Accordingly, the 12-month cumulative current account deficit is projected to shrink gradually in July and August. Gold imports amounted to USD 1.1 billion in August and to USD 20.4 billion in 12-month cumulative terms. Seasonally adjusted imports of consumption goods declined for two consecutive months in July and August, following the rise in the second quarter. When provisional foreign trade data for August are considered along with the high-frequency leading data for September, the three-month average trends point to a limited fall in exports and a stronger one in imports. Provisional data indicate a sustained decline in jewelry imports since June.
13. Regarding the financing of the current account deficit, the banking sector’s 12-month cumulative long-term debt rollover ratio hovered around 161% in June. In the non-bank corporate sector, this ratio was around 141%. 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
14. In August, consumer prices were up by 2.04% while annual inflation fell by 0.57 percentage points to 32.95%. The annual rates of change in the B and C indices dropped by 1.06 and 1.70 percentage points to 32.71% and 33.00%, respectively. Contributions to annual inflation were up in the food and non-alcoholic beverages and alcohol-tobacco-gold groups, but down in energy, services and core goods groups. In seasonally adjusted terms, the monthly increase in consumer prices slowed slightly compared to the previous month. On the other hand, when seasonally adjusted, the slowdown in the rate of increase in consumer prices excluding food is evident.
15. The food group stood out with its price hike in August. Drought and frost cases adversely affect agricultural production, exerting upward pressure on food prices both simultaneously and with a lag. In this period, the monthly price increase in food gained strength, led by fruit prices in unprocessed food and by prices of bread and cereals in processed food. It was notable that the rise in food prices spread across sub-items such as bread and cereals, milk and dairy products, non-alcoholic beverages, fresh fruits, pulses, red meat, and eggs. In addition to food, cigarettes also stood out with their price increase. The rise in prices of tobacco products continued as a portion of the increase in the specific SCT amount made in July was reflected by firms on prices in August. Meanwhile, monthly energy inflation weakened significantly in August. Monthly services inflation lost pace compared to the previous month while a mild course was observed in the group’s sub-items excluding transport services driven by passenger transport by air, and rents. Core goods inflation remained favorable on the back of the weak course of durable consumption goods prices.
16. The underlying trend of inflation slowed down in August. Based on three-month averages, indicators of the underlying trend remained flat. In seasonally adjusted terms, the B index posted a similar monthly increase to that in July while the monthly increase in the C index declined. In this period, across the groups of the B index, price increases slowed in services and core goods, but accelerated in processed food. Both the distribution-based and model-based indicators decelerated compared to the previous month. It is observed that median inflation, which exhibits relatively better forecast performance, receded to 1.8% on a monthly basis.
17. As of August, while the seasonally adjusted average price increase over the last three months decreased in core goods (1.12%), it remained relatively flat in the services sector (2.96%) compared to the previous month. In services excluding rents, this rate edged up to 2.61%.
18. 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. In August, price increases in services lost momentum compared to the previous month. Within the group, monthly price increases in rents and transportation services were remarkable while other subgroups exhibited milder figures. Monthly rent inflation remained high due also to the seasonal increase in contract renewal rates. Price hikes in transportation services were driven by seasonal developments stemming from passenger transport by air. In fact, monthly inflation rates decelerated month-on-month across the services group in seasonally adjusted terms.
19. Leading indicators monitored via the micro data of the Retail Payment System (RPS) suggest that monthly rent inflation will rise somewhat due to the seasonally high contract renewal rates in September, but lose further momentum on an annual basis. Highest contract renewal rates are seen in January and September across the year. In these periods, even if the rate of rent increase in newly signed and renewed contracts declines compared to previous month, monthly rent increases may rise due to seasonal factors in contract renewal rates. In fact, 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.
20. Domestic producer prices rose significantly by 2.48% in August, and annual inflation increase by 0.97 points to 25.16%. Across main industrial groups, there were notable price increases in the energy group (6.39%) in this period. Meanwhile, capital goods, intermediate goods and durable consumption goods registered lower rates of increase ranging within the 1.1-1.3% band. On a sectoral basis, tobacco products, electricity and natural gas, clothing and food manufacturing subgroups stood out with price increases.
21. In August, international commodity prices declined. This development was driven by the fall in energy commodities. Meanwhile, non-energy commodities recorded some increase. The FAO Food Price Index registered an uptick due to oil prices in July, but followed a milder track in August. Brent crude oil prices, which retreated to an average of USD 68.2 in August, dropped further in the first ten days of September.
22. The Global Supply Chain Pressure Index remained close to its historical average in July. The global container index and the container index for China, both of which began to decline in July, dropped further in August and as of the first ten days of September. The increase in the basket exchange rate was more limited in August. The seasonally adjusted manufacturing industry PMI data pointed to a limited increase in input prices and a slowdown in goods prices.
23. According to the September results of the Survey of Market Participants, the year-end inflation expectation for 2025 increased by 0.2 percentage points to 29.9%. The inflation expectation for end-2026 increased by 0.4 percentage points to 20.8%. Meanwhile, the 12-month- and 24-month-ahead inflation expectations were revised down by 0.6 percentage points and 0.1 percentage points to 22.3% and 16.8%, respectively. The five-year ahead inflation expectation remained relatively flat and was measured at 11.2%. According to the expectations of the real sector, the 12-month-ahead annual inflation expectation of firms declined by 1.3 percentage points to 37.7% in August. In the same period, the 12-month-ahead inflation expectation of households decreased by 0.5 percentage points to 54.1%. Inflation expectations, pricing behavior, and global developments continue to pose risks to the disinflation process.
24. Food prices and service items with high inertia are exerting upward pressure on inflation. According to leading indicators, the services and food prices developments stood out on inflation in September. Indicators imply that the underlying trend may slightly rise in this period. Adjusted for seasonal effects, monthly services inflation is anticipated to increase as the school season is back. The resumption of schools in this month has effects that spread across services subitems. Education and transport services saw price increases due to private university tuition fees and school bus fares, respectively while the rise in student residence fees drove accommodation prices up in the restaurants-hotels group. Increases in daycare fees are reflected in other services subitem. As pricing in these services items usually takes place once a year, price increases in the relevant subitems may come out higher in this period. Moreover, increases in private university tuition fees, which were reflected in the previous year's price index in August and September due to the registration period, will only be reflected in September this year. According to leading indicators, food prices are relatively negative due in part to supply-side factors stemming from drought. Unprocessed food prices are on the rise in response to developments in products such as vegetables, white meat and eggs while processed food prices have been increasing, led by items such as oils and dairy products. On the other hand, the increase in non-food consumer items is on a more moderate course.
Monetary Policy
25. The Monetary Policy Committee (the Committee) has decided to reduce the policy rate (the one-week repo auction rate) from 43% to 40.5%. The Committee has also lowered the Central Bank overnight lending rate from 46% to 43.5% and the overnight borrowing rate from 41.5% to 39%.
26. The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels. The macroeconomic framework outlined in the Medium-Term Program will contribute to this process. The Committee will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets. The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook. Monetary policy stance will be tightened in case of a significant deviation in inflation outlook from the interim targets.
27. In case of unanticipated developments in credit and deposit markets, monetary transmission mechanism will be supported via additional macroprudential measures. Liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively.
28. The Committee will make its policy decisions so as to create the monetary and financial conditions necessary to reach the 5% inflation target in the medium term. The Committee will make its decisions in a predictable, data-driven and transparent framework.