Summary of the Monetary Policy Committee Meeting (2025-57)
No: 2025-57
October 31, 2025
Summary of the Monetary Policy Committee Meeting
Meeting Date: October 23, 2025
Global Economy
1. Uncertainties regarding global trade policies remain high. Despite ongoing uncertainty, the moderate improvement in the global growth forecasts for 2025 has continued. On the other hand, rising protectionism, the fading of temporary effects of front-loading, and the possibility of prolonged uncertainty amplify the downside risks to the global growth outlook. Accordingly, the weak and fragile outlook is expected to continue; 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 weak course in the global demand outlook and the 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 continued their uptrend led by industrial and precious metal prices.
2. While risks to inflation remain prevalent globally, central banks continue to cut interest rates in light of these risks. Recently, while fluctuations in risk appetite have led to portfolio outflows from emerging markets, global uncertainties and geopolitical developments keep downside risks to portfolio flows alive.
Monetary and Financial Conditions
3. Turkish lira (TRY) deposit rates dropped by 82 basis points compared to the week ending September 12 and stood at 48.5% as of the week ending October 17. In the same period, TRY commercial loan rates (excluding overdraft accounts and credit cards) decreased by 236 basis points to 47.9%. General-purpose loan rates (excluding overdraft accounts) declined by 211 basis points to 62.7%, housing loan rates fell by 124 basis points to 37.9%, and vehicle loan rates dropped by 570 basis points to 36.3%.
4. The average four-week growth rate of retail loans declined to 3.1% in the September 12 – October 17 period. This decline resulted from the slowdown in credit card growth. The average four-week growth rate of TRY commercial loans increased from 2.3% to 2.6%. The average four-week growth rate of foreign currency (FX) commercial loans adjusted for exchange rates stood at 0.5%, below the previous MPC period level.
5. The gross international reserves of the CBRT increased by USD 20.6 billion since September 12 and reached USD 198.4 billion as of October 17. Türkiye's five-year credit default swap (CDS) premium has remained flat since September 10, standing at 267 basis points as of October 22. The 1-month and 12-month implied exchange rate volatility of the Turkish lira stood at 10.5% and 19.8%, respectively, as of October 22. 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 1.3 billion, nearly all of which was directed towards the government domestic debt securities (GDDS) market.
Demand and Production
6. In August, the retail sales volume index recorded a monthly increase of 0.9% and a quarterly increase of 1.8%. Excluding gold, the rates of increase in the index was lower both on a monthly and a quarterly basis. Thus, the growth rate of retail sales decelerated. In the same period, the trade sales volume index declined by 1.4% month-on-month and by 3.6% quarter-on-quarter, mainly due to the decrease in wholesale trade. The services production index increased by 0.4% in August. On a quarterly basis, the flat trend observed in the second quarter continued in the third quarter as well. Card spending increased in the August-September period. However, excluding the impact of the recent surge in card usage rate, consumption expenditures were more moderate. White goods sales decreased in the July-August period while automobile sales dropped in September after the rapid monthly rise in August, leading to a more moderate rise in the third quarter. Survey data for manufacturing firms indicate that the weak course of registered domestic market orders continued in the third quarter. In sum, recent data suggest that demand conditions are at disinflationary levels.
7. In August, the industrial production index increased by 0.4% month-on-month when adjusted for seasonal and calendar effects, and by 7.1% year-on-year when adjusted for calendar effects. On a quarterly basis, industrial production remained flat in the third quarter as of August. Excluding typically volatile sectors, such as other transportation and similar sectors, in order to monitor the underlying trend, industrial production posted a limited decline on a quarterly basis. Survey indicators for the manufacturing industry point that activity in the manufacturing industry remained relatively weak in the third quarter. Leading data imply that the manufacturing industry capacity utilization rate, which continued to decrease in the third quarter, will remain flat in October. As of August, the index of production in construction increased by 5.1% in quarterly terms in the third quarter, and rose by 24.5% compared to the same period of the previous year.
8. In August, seasonally adjusted employment stood at 32.8 million people, increasing by 0.5% on a quarterly basis. In this period, the labor force participation rate increased by 0.1 percentage points quarter-on-quarter, and the unemployment rate decreased by 0.2 percentage points to 8.3%. Survey indicators suggest that the outlook lagging behind historical averages for manufacturing firms' future employment expectations persisted in the third quarter of 2025 as well.
9. In August, the current account balance posted a monthly surplus of USD 5.5 billion. The 12-month cumulative current account deficit decreased by USD 0.6 billion month-on-month and stood at USD 18.3 billion. With the impact of the holiday season, travel revenues reached USD 8.3 billion on a monthly basis, exceeding the previous years’ figures by USD 0.15 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 62.3 billion.
10. In September, seasonally adjusted exports decreased while imports rose, and the 12-month cumulative foreign trade deficit increased compared to the previous month. In this period, gold imports, which were boosted by the global increase in gold prices, also contributed to this increase. In fact, when gold is excluded, the widening in the foreign trade deficit was more limited. Accordingly, the 12-month cumulative current account deficit is projected to expand in September. Gold imports amounted to USD 2.5 billion in September and to USD 21.7 billion in 12-month cumulative terms. Seasonally adjusted imports of consumption goods increased slightly in September, following the decline in July and August. When provisional foreign trade data for September are considered along with the high-frequency leading data for October, the three-month average trends point to a fall in exports, and a recovery in imports after the decrease in the third quarter.
11. Regarding the financing of the current account deficit, the banking sector’s 12-month cumulative long-term debt rollover ratio stood at 167.3% in August. In the non-bank corporate sector, this ratio was around 150%. 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
12. Consumer prices were up by 3.23% in September while annual inflation increased by 0.34 percentage points to 33.29%. The annual rate of change in the B index edged up by 0.15 percentage points to 32.86%, whereas that of the C index dropped by 0.46 percentage points to 32.54%. Contributions to annual inflation decreased in the alcohol-tobacco-gold and services groups by 0.18 and 0.13 percentage points, respectively; remained unchanged in the core goods group, but increased in the food and non-alcoholic beverages and energy groups by 0.63 and 0.02 percentage points, respectively. Accordingly, the rise in annual consumer inflation was driven by food prices. In seasonally adjusted terms, the monthly increase in consumer prices accelerated compared to the previous month while non-food inflation remained relatively flat.
13. In September, the food and non-alcoholic beverages group stood out with its price hike of 4.62%. Supply-side factors, particularly the drought with its evident impact recently, remained the main driver of food inflation in this period, as well. Additionally, increases in purchase prices of certain agricultural products also had their impact on inflation realizations. In this period, unprocessed food prices surged by 5.53% on a monthly basis, particularly led by vegetables, nuts (hazelnut, pistachio), white meat, and eggs. The monthly price increase in processed food remained high at 3.90%; price increases spread across the subgroup where fats and oils, milk and dairy products, and beverages like coffee and tea stood out. The rise in raw milk purchase prices affected milk and dairy product prices in this period. The price increase in the services sector strengthened in September compared to the previous month, due to the back-to-school effect on many items. In this period, the monthly rise in prices of core goods was driven by the clothing and footwear subgroup that was affected by the launch of the new season as well as by durable consumption goods. Meanwhile, monthly energy inflation posted a relatively moderate increase in September.
14. The underlying trend of inflation increased in September. Indicators of the underlying trend also increased slightly based on three-month averages. Seasonally adjusted monthly increases strengthened in the B and C indices compared to the previous month. Across the groups comprising the B index, price increases rose in core goods, hovered at high levels in processed food, and remained flat in services. Similarly, the distribution-based and model-based indicators also increased compared to the previous month. Median inflation, which performs better in forecasting, rose to 2.1% on a monthly basis.
15. As of September, while the seasonally adjusted average price increase over the last three months increased slightly in core goods (1.21%), it remained almost flat in the services sector (2.95%) compared to the previous month. In services excluding rents, this rate remained flat at 2.71%.
16. 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 September, price increases in services strengthened compared to the previous month due to the back-to-school effect. Within the group, monthly price increases in education and transport services stood out. While the rise in university tuition fees was felt in education services, prices in transport services rose due to school bus fares. The rise in student residence fees drove accommodation prices higher while the increase in daycare fees pushed the other services subitem up. As these services items are priced once a year, price increases in the mentioned subitems may come out higher in these months. Thus, in September, the back-to-school effect on monthly consumer inflation was approximately 0.7 percentage points. On the other hand, in this period, monthly rent inflation has slowed over the previous month, despite high contract renewal rates.
17. Leading indicators monitored via the micro data of the Retail Payment System (RPS) suggest that monthly rent inflation will decelerate due also to the seasonal decline in contract renewal rates in October. On an annual basis, rent inflation remains on the decline. 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. However, rent inflation remains higher than projected due to supply-side factors specific to the housing sector such as earthquakes and urban transformation.
18. Domestic producer prices increased by 2.52% in September and maintained its upward trend. Annual inflation was up 1.43 percentage points to 26.59%. Items that recorded remarkable price increases in this period were food products (6.77%) and durable consumption goods (2.80%). Price increases in the manufacture of food products have strengthened over the last two months. This was mainly driven by processed meat and meat products, led by poultry meat, processed fruits-vegetables, as well as fats and oils.
19. International commodity prices rose somewhat in September. This development was driven by the increase in non-energy commodity prices, led by precious and industrial metals. Energy commodity prices remained moderate during this period. The FAO Food Price Index dropped in September due to the prices of sugar and dairy products. Brent crude oil prices, averaging around USD 68.0 in September, retreated to an average of USD 64.5 in the first three weeks of October.
20. The Global Supply Chain Pressure Index remained close to its historical average in September. The global container index and the container index for China, both of which began to decline in July, dropped further in September and as of the first three weeks of October. Domestic crop production forecasts for 2025 were revised down in cereals and fruits, highlighting the increasingly negative trend in the supply of agricultural and food products. The basket exchange rate edged up in September, being more noticeable in the euro rate. During this period, seasonally adjusted manufacturing industry PMI data recorded increases for both input and goods prices.
21. The risks posed by recent price developments, particularly in food, to the disinflation process through inflation expectations and pricing behavior have become more pronounced. Inflation expectations picked up in October. According to the October results of the Survey of Market Participants, the year-end inflation expectation for 2025 rose by 1.9 percentage points to 31.8%. The year-end inflation expectation for 2026 increased by 1.4 percentage points to 22.1%. Expectations for other terms also went up. Meanwhile, the 12-month and 24-month-ahead inflation expectations were revised up by 1.0 percentage point and 0.6 percentage points to 23.3% and 17.4%, respectively. The five-year-ahead inflation expectation was measured at 11.4%, with an upward revision of 0.3 percentage points. According to the expectations of the real sector, the 12-month-ahead annual inflation expectation of firms declined by 0.9 percentage points to 36.8% in September. In the same period, the 12-month-ahead inflation expectation of households decreased by 1.1 percentage points to 53.0%.
22. Data point to a slowdown in the disinflation process. Leading indicators suggest that the unfavorable trend in food prices continues, albeit at a slower pace. Unprocessed food prices are on the rise due to developments in products such as vegetables, white meat, eggs, rice, pulses, and nuts, and processed food prices are up, led by items such as fats and oils, meat products, bread and cereals, tea, and dairy products (affected by the raw milk purchase price). In the core goods group, clothing prices increase due to seasonal effects associated with the launch of a new season while durable consumption goods prices rise at a more limited rate compared to the previous month. Prices for white goods and automobiles, which rose significantly in the previous month, record a relatively limited increase in October. Meanwhile, price increases in furniture and certain consumer electronics items are more pronounced in October. Energy prices follow a mild course on the back of global developments. According to leading indicators, monthly services inflation slows significantly during this period while remaining relatively flat when adjusted for seasonal effects.
Monetary Policy
23. The Monetary Policy Committee (the Committee) has decided to reduce the policy rate (the one-week repo auction rate) from 40.5% to 39.5%. The Committee has also lowered the Central Bank overnight lending rate from 43.5% to 42.5% and the overnight borrowing rate from 39% to 38%.
24. 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 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 is 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.
25. 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.
26. 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.