Turkey’s Central Bank Stays the Course Toward Disinflation

Turkey continues to navigate a challenging economic landscape as its central bank pursues a determined path toward achieving price stability and reversing years of high inflation. In a recent address, the Governor of the Central Bank of the Republic of Turkey (CBRT) outlined the key developments and policy actions that have shaped the nation’s economic trajectory over the past year and into early 2025.

The global outlook in 2024 saw modest improvements in growth, yet ongoing geopolitical tensions and uncertainties in trade policies posed risks for expansion in 2025. Domestically, Turkey’s economy experienced robust activity in early 2024 due to strong wage growth and front-loaded demand before slowing later in the year under tighter monetary policy conditions. By year-end, GDP growth moderated to 3.2%, led predominantly by the services sector and bolstered by a healthier balance between domestic demand and net exports.

The CBRT’s decisive actions—including steep policy rate hikes to a peak of 50% and subsequent cautious reductions to 42.5% by March 2025—were central to the disinflation strategy. The central bank also implemented a range of macroprudential measures, such as new controls on loan growth, regulatory simplifications, and targeted steps to phase out FX-protected deposit accounts, aiming to enhance financial stability and monetary policy effectiveness. These steps helped reduce inflation from a staggering 75.5% in mid-2024 to 44.4% by year’s end, with continued improvement into 2025. Meanwhile, the current account deficit narrowed sharply due to stronger exports, a robust services surplus, and better terms for gold and energy trade.

Facing volatility in financial markets in early 2025, the CBRT responded swiftly with further policy rate adjustments and innovative liquidity management tools to calm markets and preserve macroeconomic stability. Alongside its monetary policy efforts, the central bank enhanced public communication, modernized financial infrastructure, and strengthened its research and stakeholder engagement initiatives.

Maintaining its commitment, the CBRT underscored that tight monetary conditions would persist until a clear and sustained decline in inflation is realized. These measures are vital as Turkey works to secure long-term price stability, a necessary foundation for durable economic growth and improved social welfare.