Summary of the Monetary Policy Committee Meeting (2025-39)
No: 2025-39
June 26, 2025
Summary of the Monetary Policy Committee Meeting
Meeting Date: June 19, 2025
Global Economy
1. Lingering uncertainties regarding global trade policies has remained high, despite some recent easing. Accordingly, there has been a moderate improvement in the global growth outlook. 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 2.2% in 2026. Crude oil prices, which fell sharply in April due to the deterioration in the global demand outlook, have risen again owing to the recent geopolitical developments, and upside risks for energy commodity prices have increased. 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 the global economic activity.
2. While the expected effects of tariff hikes on inflation may differ across countries, inflation uncertainty have increased globally. Accordingly, it is expected that central banks will maintain their cautious approach in rate cuts. Although there have been moderate portfolio flows into emerging markets recently, 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. On the back of the rise in the policy rate, Turkish lira (TRY) deposit rates rose by 334 basis points compared to the week ending April 18, and stood at 56.7% as of the week ending June 13. In the same period, TRY commercial loan rates (excluding overdraft accounts and credit cards) increased by 455 basis points to 60.3%. General-purpose loan rates (excluding overdraft accounts) increased by 31 basis points to 70.9% housing loan rates increased by 390 basis points to 43.5%, and vehicle loan rates rose by 302 basis points to 46.5%.
5. The average four-week growth rate of retail loans increased to 4.8% in the April 18- June 13 period. This rise resulted from the acceleration in credit card balance growth while there was a limited rise in the growth of other retail loans. The average four-week growth rate of TRY commercial loans decreased from 3.6% to 2.4%. Consistent with 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 0.5%.
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. Reserve requirement ratios have been increased for FX deposits across all maturities; funds that are derived from FX repo transactions with residents with a maturity up to 1 year, Turkish lira-denominated funds derived from repo transactions abroad and loans obtained from abroad with maturities up to 1 year varying according to maturity. Moreover, items exempt from loan growth limit have been changed.
7. The gross international reserves of the CBRT increased by USD 12.7 billion since April 18 and reached USD 159.3 billion as of June 13. During the week of June 13, 2025, geopolitical developments led to an increase in the credit risk premiums and exchange rate volatility; nevertheless in the subsequent period these indicators settled slightly. Türkiye's five-year credit default swap (CDS) premium reached 304 basis points on June 18, falling by around 40 basis points since April 16. The 1-month and 12-month implied exchange rate volatility of the Turkish lira declined to 12.4% and 23.0%, respectively, as of June 18. Since the previous MPC meeting week, net portfolio inflows have totaled USD 1.4 billion, comprising USD 0.1 billion of outflows from the government domestic debt securities (GDDS) market and USD 1.5 billion of inflows to the stock market.
Demand and Production
8. Gross Domestic Product (GDP) data pointed to a decline in annual and quarterly growth rates in the first quarter of 2025. The services sector remained the main driver of annual growth, which was restrained by the industrial sector. While annual growth in private consumption lost pace, total investments continued to contribute positively to annual growth. On a quarterly basis, private consumption and total investments fell. As exports of goods and services posted a quarterly increase and imports declined, net exports made a positive contribution to quarterly growth. In this context, domestic demand weakened, and external balance improved in the first quarter amid ongoing tightening in financial conditions.
9. In April, the retail sales volume index recorded monthly and quarterly increases of 2.8% and 2.3%, respectively. Excluding gold, milder increases were recorded in both monthly and quarterly terms. Retail sales were down month-on-month in textiles, clothing, footwear, medical products, and cosmetics, as well as shopping online or via mail order. In the same period, the trade sales volume index fell by 3.1% month-on-month and increased by 0.8% quarter-on-quarter. The services production index decreased by 0.6% in April. On a quarterly basis, following a rise of 3.4% in the first quarter of the year, the index went down in the second quarter as of April. The increased card spending in March due to the seasonally increased demand in the run-up to Eid al-Fitr decelerated in April and May. White goods sales picked up in April while automobile sales registered a quarterly decline in the April-May period. Survey data for manufacturing firms indicate that registered domestic market orders in the second quarter were below the previous quarter's level. In sum, data for the second quarter point to a slowdown in domestic demand.
10. In April, the industrial production index decreased by 3.1% month-on-month when adjusted for seasonal and calendar effects and increased by 3.3% year-on-year when adjusted for calendar effects. On a quarterly basis, industrial production dropped by 1.5% in the second quarter as of April. Excluding typically volatile sectors, such as other transportation and similar sectors, in order to monitor the underlying trend, the fall in industrial production in monthly and quarterly terms was more moderate. Bridge days associated with the administrative extension of the Eid al-Fitr holiday partly contributed to the monthly decline in industrial production. Given the downward impact of typically volatile sectors as well as that of bridge days, the underlying trend of industrial production was relatively flat in April. Survey indicators for the manufacturing industry point to continued weak activity in the manufacturing industry in the second quarter. As of May, the manufacturing industry capacity utilization rate dropped by 0.1 percentage points quarter-on-quarter. Meanwhile, the index of production in construction declined by 3.1% in quarterly terms in the second quarter as of April but rose by 12.5% compared to the same period of the previous year.
11. In April, seasonally adjusted employment stood at 32.4 million people, declining by 0.3% 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 8.6% in the second quarter as of April. Survey indicators suggest that the outlook lagging behind historical averages for manufacturing firms' future employment expectations will persist in the second quarter of 2025 as of May.
12. In April, the current account balance posted a monthly deficit of USD 7.9 billion. 12-month cumulative current account deficit stood at USD 15.8 billion, with a month-on-month increase of USD 3.0 billion. In April, the high course of the foreign trade deficit on a monthly basis was driven both by the holiday-related volatility in foreign trade data, similar to that observed in previous years, and the partial front-loading, especially in imports, amid heightened uncertainty over global trade policies. Thus, the gold trade deficit and the foreign trade deficit excluding gold and energy increased despite the high course of the services balance surplus. During this period, the 12-month cumulative services balance surplus remained robust and reached USD 62.0 billion.
13. In May, seasonally adjusted exports increased while imports posted a significant decline. The 12-month cumulative data reveal that the foreign trade deficit was similar to the previous month. Accordingly, the 12-month cumulative current account deficit is not projected to show a significant change in May. Gold imports amounted to USD 2.1 billion in May and to USD 20.1 billion in cumulative terms. Seasonally adjusted imports of consumption goods continued their upward trend, which began in March, in April and May. Excluding the jewelry imports, consumption goods imports posted a limited increase in May. When provisional foreign trade data for May is considered along with the high-frequency leading data for June, the three-month average trends point to a slight decline in exports after the sharp increase in May, and to a flat course in imports as the brought-forward imports in April amid heightened uncertainty was offset in May. High-frequency data imply a high level of jewelry imports and a flat course in consumption goods imports excluding jewelry on a monthly basis in June, following May's trends.
14. Regarding the financing of the current account deficit, the banking sector’s 12-month cumulative long-term debt rollover ratio hovered around 171% in April. In the non-bank corporate sector, this ratio was around 142%. 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
15. In May, consumer prices were up by 1.53% while annual inflation fell by 2.45 percentage points and stood at 35.41%. Annual inflation in the B and C indices declined by 2.00 and 1.75 percentage points to 34.81% and 35.37%, respectively. Contributions to annual inflation were unchanged in core goods but down in other groups. In seasonally adjusted terms, the monthly increase in consumer prices lost pace month-on-month.
16. In May, developments in the Turkish lira continued to have an impact on core inflation while services inflation weakened. Price increases in durable consumption goods waned somewhat compared to the previous month, yet remained relatively high, driven by the automobile item. The rent sub-group stood out in services inflation while other subgroups followed a mild course. May consumer price developments were marked by the decline in the prices of the food group, which was driven by the unprocessed food subgroup. This decline is mainly attributed to vegetables and some other unprocessed food items despite the ongoing adverse outlook in fruit prices. Meanwhile, energy prices increased in May due to the rise in municipal water prices coupled with the carry-over effect of the arrangement in residential electricity tariffs in April.
17. The underlying trend of inflation declined in May. In seasonally adjusted terms, monthly increase in the B and C indices recorded a decline compared to the previous month. In this period, price increases weakened across the groups of the B index. Both the distribution-based and the model-based indicators pointed to a decline in this period.
18. As of May, the seasonally adjusted average price increase over the last three months went up to 2.02% in core goods, but slowed down in the services sector compared to the previous month and stood at 2.79%. In the services excluding rents, this rate decreased to 2.40%.
19. 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, annual services inflation remains higher than goods inflation. However, recent price developments indicate a gradual loss of strength in monthly services inflation. In fact, monthly price increases in the services group weakened mostly owing to the non-rent items in May. Amid the seasonal decline in contract renewal rates and the slowdown in rent increase in contracts, the monthly rent inflation fell to 3.10%, yet remained high in May. Monthly inflation in services excluding rents also slowed down to 1.34%. In this period, seasonally-adjusted monthly inflation decelerated in rents, communication, restaurants-hotels and other services groups, but increased in the transport sub-group compared to the previous month. The mild course recorded in monthly inflation of the communication group in the last two months was maintained in May.
20. Leading indicators monitored via the micro data of the Retail Payment System (RPS) suggest that the monthly rent inflation will remain relatively flat in June 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.
21. In May, domestic producer prices rose by 2.48%, and annual inflation rose by 0.63 percentage points to 23.13%. Across main industrial groupings, price increases accelerated notably in the energy group, but decelerated in other groups.
22. In May, international commodity prices declined further. Across subcategories, prices receded in energy commodities, but increased in non-energy commodities due mainly to industrial metals. The decline of 2.3% in energy commodities is attributed to the Brent oil prices. The FAO food price index also dropped somewhat in May. However, after having decreased for a while due to the expected slowdown in global economy amid the rise in tariffs and accompanying uncertainty, commodity prices started to increase again in June with the energy group in the lead. Brent crude oil prices, which were USD 64.2 on average in May, reached around USD 75 in mid-June as a result of the geopolitical developments. Potential effects of the geopolitical developments and the rising protectionism in global trade on the disinflation process are closely monitored.
23. The Global Supply Chain Pressure Index was slightly above its historical average in May. The global container index remained relatively flat in May while the container index for China recorded an uptick. These freight indices increased substantially in the first half of June, following the geopolitical developments. In May, 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 May.
24. Inflation expectations have partially improved in June. According to the results of the Survey of Market Participants in June, the year-end inflation expectation for 2025 decreased by 0.5 percentage points to 29.9%. The inflation expectation for end-2026 was revised downwards by 0.1 percentage points to 20.4% and expectations declined also for other terms. The 12-month and 24-month-ahead inflation expectations were revised down by 0.5 percentage points and 0.4 percentage points to 24.6% and 17.4%, respectively. Meanwhile, the five-year-ahead inflation expectation edged down by 0.2 percentage points and was measured at 11.0%. According to the expectations of the real sector, the 12-month-ahead annual inflation expectation of firms, which was 41.7% in April, declined by 0.7 percentage points to 41.0% in May. In the same period, the 12-month-ahead inflation expectation of households increased by 0.6 percentage points to 59.9%. Inflation expectations and pricing behavior continue to pose risks to the disinflation process.
25. Leading indicators suggest that the decline in the underlying trend of inflation continues in June. In seasonally adjusted terms, monthly core goods inflation is expected to lose pace in June while services inflation is likely to remain relatively flat. Leading indicators point to a relatively limited increase in durable consumption goods, which have high exchange rate pass-through, except for white goods. In the services group, prices of transport services are expected to rise in June driven by prices of passenger transport by road, due in part to the religious holiday. Services items excluding transport and rents display a mild course. In the unprocessed food group, leading indicators for the first half of June imply that the rise in fresh fruit prices, which were affected by the agricultural frost, has been offset by the fall in vegetable prices. On the other hand, processed food inflation remains low across the group. In the energy group, inflation is primarily led by municipal water prices as well as fuel prices due to the increase in crude oil prices. Meanwhile, data indicate a partial decline in electricity prices driven by the End Source Supply Tariff. Considered as a whole, leading indicators suggest that the disinflation process continues.
Monetary Policy
26. The Monetary Policy Committee (the Committee) has decided to keep the policy rate (the one-week repo auction rate) at 46%. The Committee also maintained the Central Bank overnight lending rate and the overnight borrowing rate at 49% and 44.5%, respectively.
27. 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. All monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen.
28. 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.
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.