Summary of the Monetary Policy Committee Meeting (2025-43)
No: 2025-43
July 31, 2025
Summary of the Monetary Policy Committee Meeting
Meeting Date: July 24, 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 2.0% in 2025 and 2.3% in 2026. While the deterioration in the global demand outlook continues to weigh on crude oil prices, energy commodity prices follow a volatile course due to geopolitical developments. 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 the expected effects of tariff hikes on inflation may differ across countries, inflation uncertainty has increased globally. Accordingly, it is expected that central banks will maintain their cautious approach in rate cuts. Although portfolio inflows into emerging markets continue, elevated levels of global uncertainties and geopolitical developments keep downside risks to portfolio flows alive.
3. Geopolitical developments may adversely affect the global economy through channels such as energy prices, the risk appetite, country risk premiums, and tourism.
Monetary and Financial Conditions
4. Due to the expectation of a policy rate cut, Turkish lira (TRY) deposit rates dropped by 175 basis points compared to the week ending June 20 and stood at 54.7% as of the week ending July 18. In the same period, TRY commercial loan rates (excluding overdraft accounts and credit cards) decreased by 381 basis points to 55%. General-purpose loan rates (excluding overdraft accounts) declined by 338 basis points to 67.6%, and housing loan rates fell by 98 basis points to 42.6% while vehicle loan rates dropped by 17 basis points to 44.6%.
5. The average four-week growth rate of retail loans decreased to 2.7% in the June 20-July 18 period. This decline mainly resulted from the slowdown in credit card balance growth, but the slower growth in housing and vehicle loans also had an impact. The average four-week growth rate of TRY commercial loans increased from 2.4% to 3%. Hovering below the growth limit applied to foreign currency (FX) loans, the average four-week growth rate of FX commercial loans adjusted for exchange rates stood at 0.4%.
6. In order to strengthen the monetary transmission mechanism and support transition to the Turkish lira, several changes have been made to the macroprudential framework in the current MPC period. While targets based on the share of real-person TRY deposit have been increased, a growth target has been introduced for banks with a share between 60% and 65%, as well. The reserve requirement ratio for FX-protected deposit (KKM) accounts was raised from 33% to 40% while the minimum interest rate applicable to KKM accounts was reduced from 50% to 40% of the policy rate. The target for the transition of KKM accounts to TRY was abolished while the total target for KKM renewals and transition to TRY was maintained. It was made possible to open floating-rate TRY deposit accounts with maturities longer than one month. Furthermore, the reserve requirement ratios for CPI-, PPI-, and TLREF-indexed deposits were set at 10% for all maturities. The ratio for TRY-denominated required reserves that should be maintained for FX deposits was reduced from 4% to 2.5%.
7. The gross international reserves of the CBRT increased by USD 12.9 billion since June 20 and reached USD 168.6 billion as of July 18. Türkiye's five-year credit default swap (CDS) premium declined to 282 basis points as of July 23. The 1-month and 12-month implied exchange rate volatility of the Turkish lira declined to 9.1% and 19.8%, respectively, as of July 23. Since the previous MPC meeting week, net portfolio inflows have totaled USD 3.7 billion, comprising USD 2.9 billion of inflows to the government domestic debt securities (GDDS) market and USD 0.8 billion of inflows to the stock market.
Demand and Production
8. In May, the retail sales volume index recorded monthly and quarterly increases of 1.6% and 3.1%, respectively. Excluding gold, milder increases were recorded in both monthly and quarterly terms. In the same period, the trade sales volume index rose by 3.3% month-on-month and 3% quarter-on-quarter. The services production index increased by 1.2% in May. On a quarterly basis, following a rise of 3.3% in the first quarter of the year, the index edged down in the second quarter as of May. After an increase in May, card spending remained flat in June but increased on a quarterly basis. However, excluding the impact of the recent surge in card usage rate, consumption expenditures were more moderate. White goods sales picked up in the April-May period while automobile sales registered a decline in the second quarter. Survey data for manufacturing firms indicate that registered domestic market orders in July were below the previous quarter's level. Information on consumption expenditures from interviews with firms also confirms weak course of domestic demand. In sum, recent data indicate that the disinflationary impact of demand conditions has strengthened.
9. In May, the industrial production index increased by 3.1% month-on-month when adjusted for seasonal and calendar effects and by 4.9% year-on-year when adjusted for calendar effects. On a quarterly basis, industrial production was flat in the second quarter as of May. Excluding typically volatile sectors, such as other transportation and similar sectors, in order to monitor the underlying trend, the rise in industrial production was more limited on a monthly basis. However, when viewed on a quarterly basis, there was a slight downturn in industrial production. The downward impact on production caused by the bridge days associated with the administrative extension of the Eid al-Fitr holiday in April was partially offset in May, which drove up industrial production. Given the upward impact of typically volatile sectors and low base related to the bridge days in April, the underlying trend of industrial production was relatively flat in the second quarter as of May. Survey indicators for the manufacturing industry point to continued weak activity in the manufacturing industry in the second quarter. The manufacturing industry capacity utilization rate dropped by 0.3 percentage points quarter-on-quarter. Leading data for July point to an ongoing decline in the capacity utilization rate. Meanwhile, the index of production in construction declined by 1.1% in quarterly terms in the second quarter as of May but rose by 16.5% compared to the same period of the previous year.
10. In May, seasonally adjusted employment stood at 32.5 million people, declining by 0.1% on a quarterly basis. In this period, the labor force participation rate was unchanged quarter-on-quarter, and the unemployment rate rose by 0.3 percentage points to 8.5%. Survey indicators suggest that the outlook lagging behind historical averages for manufacturing firms' future employment expectations has persisted in the second quarter of 2025.
11. In May, the current account balance posted a monthly deficit of USD 0.7 billion, driven by the decline in the foreign trade deficit. The 12-month cumulative current account deficit stood at USD 16 billion. Travel revenues surpassed the previous year's level, reaching USD 5 billion on a monthly basis with the start of the holiday season. During this period, travel revenues stood at USD 57.2 billion in 12-month cumulative terms while the services balance surplus remained robust and reached USD 62.2 billion.
12. In June, seasonally adjusted exports decreased while imports posted an increase. The 12-month cumulative data reveal that the foreign trade deficit widened compared to the previous month. Accordingly, the 12-month cumulative current account deficit is projected to rise in June. Gold imports amounted to USD 1.6 billion in June and to USD 20.6 billion in 12-month cumulative terms. Seasonally adjusted imports of consumption goods increased in the second quarter. Excluding the jewelry imports, consumption goods imports were up both in June and throughout the quarter. When provisional foreign trade data for June are considered along with the high-frequency leading data for July, the three-month average trends point to a flat course in exports and to a decline in imports. High-frequency data imply a sustained high level of consumption goods imports excluding jewelry, albeit with a monthly drop in July.
13. Regarding the financing of the current account deficit, the banking sector’s 12-month cumulative long-term debt rollover ratio hovered around 168% in May. In the non-bank corporate sector, this ratio was around 145%. 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 June, consumer prices were up by 1.37% while annual inflation fell by 0.36 percentage points to 35.05%. The annual rate of change dropped by 0.19 percentage points to 34.62% in the B index but rose by 0.27 percentage points to 35.64% in the C index. Contributions to annual inflation were up in core goods and energy but down in food and non-alcoholic beverages, and services. In seasonally adjusted terms, the monthly increase in consumer prices showed no significant change compared to the previous month.
15. In June, monthly services inflation went up compared to previous month. Transport services rising due to the religious holiday and fuel prices, and education and rent subitems, which have a strong tendency for backward indexation, stood out in this group. Monthly inflation in the energy group was driven by municipal water, along with rising fuel prices following recent geopolitical developments. While monthly inflation in core goods eased compared to the previous month, there was a relatively modest increase in durable consumption goods, which have high exchange pass-through, except for white goods. Food prices have retreated somewhat. In this group, unprocessed food prices fell, led by vegetables while the monthly price increase in processed food moderated. On the other hand, the less-than-seasonal decline in fresh fruit and vegetable prices limited the drop in unprocessed food prices.
16. The underlying trend of inflation remained flat in June. In seasonally adjusted terms, the monthly increase in the B index was slightly lower while the C index showed no significant change. Across the groups of the B index, price increases slowed in core goods and processed food, but accelerated in services. Both the distribution-based and the model-based indicators remained broadly unchanged from the previous month.
17. As of June, while the seasonally adjusted average price increase over the last three months was flat in core goods (2.06%), it increased in the services sector (2.95%) compared to the previous month. In services excluding rents, this rate edged up to 2.55%.
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. Service group price increases strengthened somewhat in June. Prices in transportation services increased due to the effects of the religious holiday and fuel price developments; prices of education services, an item of the other services subgroup, rose, led by developments in private school fees, compared to the previous month. In this period, monthly rent inflation went up due to seasonal effects stemming from contract renewal rates. Meanwhile, monthly inflation in communications and restaurants-hotels remained relatively modest.
19. Leading indicators monitored via the micro data of the Retail Payment System (RPS) suggest that monthly rent inflation will rise due to seasonal factors, reflecting increased contract renewal rates in July, and lose further momentum on an annual basis. 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.
20. Producer inflation has been negatively affected by recent geopolitical developments. Domestic producer prices rose by 2.46% in June, led by energy items, and annual producer inflation picked up by 1.32 percentage points to 24.45%. Across main industrial groupings, there were notable price increases in the energy group (8.42%) driven by geopolitical developments.
21. In July, international commodity prices receded somewhat. After rising significantly in June due to geopolitical developments, energy prices remained relatively stable in July. Meanwhile, prices in non-energy commodities fell, with agricultural commodity prices being a key driver in this course. In June, Brent crude oil prices hovered around USD 78 due to global developments, but they retreated to an average of USD 71 by the third week of July. Potential effects of the geopolitical developments and the rising trade protectionism on the disinflation process are closely monitored.
22. The Global Supply Chain Pressure Index remained close to its historical average in June. Both the global container index and the container index for China recorded notable increases in this period, but this trend reversed in the first half of July. In June, the basket exchange rate increased, more apparently in the euro rate. The seasonally adjusted manufacturing industry PMI data point to a rise in input prices and a weakening in goods prices.
23. According to the results of the Survey of Market Participants in July, the year-end inflation expectation for 2025 decreased by 0.2 percentage points to 29.7%. The inflation expectation for end-2026 remained unchanged. The 12-month- and 24-month-ahead inflation expectations were revised down by 1.2 percentage points and 0.3 percentage points to 23.4% and 17.1%, respectively. Meanwhile, the five-year-ahead inflation expectation edged up by 0.2 percentage points 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 1.2 percentage points to 39.8% in June. In the same period, the 12-month-ahead inflation expectation of households decreased by 6.9 percentage points to 53.0%. Inflation expectations and pricing behavior continue to pose risks to the disinflation process.
24. Leading indicators suggest a temporary rise in monthly inflation in July due to month-specific factors. In this period, monthly consumer inflation has been influenced by administered prices and tax adjustments, as well as developments in services sector subitems with a strong tendency of time-dependent price-setting. Nevertheless, the underlying trend is expected to be moderate. In seasonally adjusted terms, monthly inflation in core goods and services is likely to edge up in July. Leading indicators suggest notable price increases in furniture and automobiles, whereas a relatively mild course for other subitems among durable consumption goods. In the services sector, in addition to rents, price developments in items with a strong tendency for time-dependent price-setting, such as communications and healthcare services, have played a significant role in this period. In July, the energy sector has stood out with notable price increases among the main groupings. The revised natural gas tariffs for households and lump-sum tax adjustments on fuel and bottled gas are projected to be decisive in this uptrend. Price increases are monitored in the alcoholic beverages and tobacco group in this period due to lump-sum tax adjustments. On the other hand, food prices are expected to remain on a moderate path in July. On the unprocessed food front, price declines in fresh fruits and seasonal products are anticipated. In contrast, processed food inflation is expected to rise somewhat, led by the bread and cereals group. In the light of all available data, leading indicators suggest that the disinflation process continues.
Monetary Policy
25. The Monetary Policy Committee (the Committee) has decided to reduce the policy rate (the one-week repo auction rate) from 46% to 43%. The Committee has also lowered the Central Bank overnight lending rate from 49% to 46% and the overnight borrowing rate from 44.5% to 41.5%.
26. The tight monetary policy stance, which will be maintained until price stability is achieved, will support the disinflation process through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations. Going forward, coordination of fiscal policy 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. The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook. All monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen.
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.