Summary of the Monetary Policy Committee Meeting (2025-62)
No: 2025-62
December 18, 2025
Summary of the Monetary Policy Committee Meeting
Meeting Date: December 11, 2025
Global Economy
1. Uncertainty regarding global trade policies has receded, but it remains above its historical average. Despite ongoing uncertainty, the moderate improvement trend in global growth forecasts has extended into the current MPC period. On the other hand, rising protectionism, the fading of temporary effects of front-loading, and the possibility of prolonged uncertainty keep downside risks to the global growth outlook alive. 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 2.0% 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 remain low. On the other hand, non-energy commodity prices continued their uptrend led by agricultural commodity, 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 119 basis points compared to the week ending October 24 and stood at 46.9% as of the week ending December 5. In the same period, TRY commercial loan rates (excluding overdraft accounts and credit cards) increased by 76 basis points to 47.9%. General-purpose loan rates (excluding overdraft accounts) rose by 262 basis points to 64.6%, housing loan rates fell by 25 basis points to 37.8%, and vehicle loan rates dropped by 125 basis points to 34.1%.
4. The average four-week growth rate of retail loans edged down to 3% in the October 24 – December 5 period. This decline resulted from the slowdown in credit card growth. The average four-week growth rate of TRY commercial loans remained flat at 2.6%. The average four-week growth rate of foreign currency (FX) commercial loans adjusted for exchange rates stood at 0.4%, below the previous MPC period level.
5. The CBRT has decided to take simplification steps regarding the reserve requirement (RR) regulation. The Bank has terminated the provisional arrangement setting the reserve requirement ratio at zero percent for the amount of increase in FX liabilities with maturities longer than one year that banks and financing companies obtain directly from abroad as of year-end. Additionally, revisions have been made to the FX reserve requirements, which will be maintained at the new ratios as of January 16, 2026.
6. The gross international reserves of the CBRT increased by USD 0.9 billion since October 24 and reached USD 186.4 billion as of December 5. Türkiye's five-year credit default swap (CDS) premium declined by around 41 basis points since October 22, standing at 226 basis points as of December 10. The 1-month and 12-month implied exchange rate volatility of the Turkish lira decreased to 8.4% and 18.7%, respectively, as of December 10. Since the previous MPC meeting week, net portfolio inflows have totaled USD 1.8 billion, comprising USD 1.6 billion of inflows to the government domestic debt securities (GDDS) market and USD 0.2 billion of inflows to the stock market.
Demand and Production
7. In the third quarter of 2025, gross domestic product (GDP) increased by 3.7% year-on-year and 1.1% quarter-on-quarter. Quarterly GDP growth turned out higher than projected. Due to the decline in crop production caused by frost and drought, agricultural value added fell by 12.7% on an annual basis in this period, limiting growth. Growth was higher when the agricultural sector was excluded. By the expenditure approach, private consumption and total investments made a positive contribution to annual growth in this period. Private consumption, which declined in the first two quarters of the year, increased in the third quarter on a quarterly basis. Meanwhile, total investments continued to support growth in this period, just as they did in the second quarter of the year. In the third quarter, imports of goods and services decreased on a quarterly basis while exports increased. Thus, net exports contributed positively to quarterly growth. Economic activity, which picked up in the second quarter, eased somewhat in the third quarter, growing at a rate close to its quarterly potential.
8. The services production index edged down in September. On a quarterly basis, the flat trend observed in the second quarter continued in the third quarter as well. In October, the retail sales volume index recorded a monthly increase of 0.2% and a quarterly increase of 2.2%. Retail sales excluding gold declined by 0.1% month-on-month while quarterly growth decelerated and stood at 0.7%. In the same period, the trade sales volume index decreased by 3.6% on a monthly basis and continued to decline on a quarterly basis, similar to the previous quarter. Card spending increased in the October-November period. However, excluding the impact of the recent surge in card usage rate, consumption expenditures were more moderate. White goods sales increased in October and automobile sales rose moderately in the October-November period. Survey data for manufacturing firms indicate that registered domestic market orders increased slightly in the last quarter of the year, after declining in the previous two quarters. In sum, leading indicators for the last quarter point out that demand conditions continue to support the disinflation process.
9. In October, the industrial production index decreased by 0.8% month-on-month when adjusted for seasonal and calendar effects, and by 2.2% year-on-year when adjusted for calendar effects. On a quarterly basis, industrial production declined by 2% in the fourth quarter as of October. Excluding typically volatile sectors, such as other transportation and similar sectors, in order to monitor the underlying trend, industrial production posted a more limited decline on a quarterly basis. Survey indicators for the manufacturing industry point to an increase in the sector’s activity in the fourth quarter. The capacity utilization rate increased moderately by 0.2 quarter-on-quarter as of November. The index of production in construction increased by 7.8% in quarterly terms in the third quarter, and rose by 26.3% compared to the same period of the previous year.
10. In October, seasonally adjusted employment stood at 32.8 million people, increasing by 0.4% relative to the previous quarter average. In this period, the labor force participation rate increased by 0.2 percentage points quarter-on-quarter, and the unemployment rate edged up by 0.1 percentage points to 8.5%. Survey indicators suggest that the outlook lagging behind historical averages for manufacturing firms' future employment expectations persisted in the fourth quarter of 2025 as well.
11. In September, the current account balance ran a monthly surplus of USD 1.1 billion. The 12-month cumulative current account deficit increased by USD 1.7 billion month-on-month and stood at USD 20.1 billion. Travel revenues came out USD 7 billion, reaching USD 58.9 billion in 12-month cumulative terms. The services balance surplus remained robust at USD 62.6 billion.
12. In November, seasonally adjusted exports and imports increased. This increase was more pronounced in exports, which had declined over the past three months. However, 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 foreign trade deficit narrowed. According to the current data, the 12-month cumulative current account deficit is projected to expand in October and November. Gold imports remained high in October and November, increasing further in 12-month cumulative terms. Seasonally adjusted imports of consumption goods decreased further in October, following the significant decline in the third quarter, but increased in November. When provisional foreign trade data for November are considered along with the high-frequency leading data for December, the three-month average trends point to an increase in exports and imports.
13. Regarding the financing of the current account deficit, the banking sector’s 12-month cumulative long-term debt rollover ratio stood at 169.5% in September. In the non-bank corporate sector, this ratio was around 147.1%. Accordingly, external financing opportunities remain at high levels.
Inflation Developments and Expectations
14. Consumer prices were up by 0.87% in November while annual inflation dropped by 1.80 percentage points to 31.07%. The fall in annual consumer inflation was driven by food prices while annual consumer inflation excluding food remained relatively flat. The annual rate of change in the B index was down by 0.35 percentage points to 32.17%, whereas that of the C index dropped by 0.40 percentage points to 31.65%. Contributions to annual inflation decreased in the food and non-alcoholic beverages, core goods and services groups by 1.61, 0.20 and 0.17 percentage points, respectively; but increased in the alcohol-tobacco-gold and energy groups by 0.10 and 0.08 percentage points, respectively. In seasonally adjusted terms, consumer prices saw weaker monthly increases compared to the previous month.
15. In November, consumer inflation was lower than expected due to a downward surprise in food prices. Having followed an unfavorable course over the recent months, food prices fell in November due to unprocessed food prices, which was led by vegetable products while the monthly price increase in the processed food group decelerated. In this period, the decline of 3.33% in unprocessed food prices was driven by falling prices in vegetables (-9.52%), eggs (-8.38%) and white meat (-8.24%). On the processed food front, prices rose by 1.50% compared to the previous month due mainly to meat products (5.17%) and fats and oils (4.22%). Prices of services rose by 1.46% in November, and services inflation remained flat in seasonally adjusted terms. The monthly increase in core goods prices was relatively moderate in November. Meanwhile, monthly energy inflation posted an uptick due mainly to the fuel item driven by diesel oil, which diverged from the developments in crude oil prices.
16. Following an increase in September, the underlying trend of inflation declined slightly in October and November. Indicators of the underlying trend did not register an apparent change based on three-month averages. Seasonally adjusted monthly inflation remained flat in the B index and increased in the C index compared to the previous month. Across the groups comprising the B index, price increases slowed in processed food, remained flat in services and posted a slight increase in core goods. The distribution-based and model-based indicators decreased compared to the previous month. Median inflation, which performs better in forecasting, fell to 1.8% on a monthly basis.
17. As of November, while the seasonally adjusted average price increase over the last three months increased slightly in core goods (1.19%) it remained almost flat in the services sector (2.89%) compared to the previous month.
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 November, while annual inflation declined in rents and communication services it went up in other groups. Rent inflation weakened further at 2.49% on a monthly basis, driving the group’s annual inflation down to 63.59%. Prices in the transport subgroup increased by 1.69% and annual inflation rose to 43.24%. This was mainly driven by the increase in prices of passenger transport by air. The monthly price increase in the communication subgroup (1.51%) was driven by rises in phone call and internet charges. In restaurants-hotels, monthly inflation receded to 0.89% due to declining hotel prices. Prices in the other services subgroup remained relatively moderate at 1.06%, with package tour prices rising in line with those of pilgrimage tour services.
19. Leading indicators monitored via the micro data of the Retail Payment System (RPS) suggest that the contract renewal rate continued to decrease and the rates of rent increases used as a reference in contracts decelerated in December. Thus, rent inflation remains on the decline both in monthly and annual terms. 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.
20. Domestic producer prices rose by 0.84% in November, and annual inflation was up by 0.23 points to 27.23%. Monthly producer inflation weakened compared to previous months due in part to the Turkish lira outlook. In this period, energy prices declined (-0.48%) while capital goods (1.54%) and intermediate goods (1.27%) stood out with price increases.
21. International commodity prices went up slightly in November, primarily driven by the rise in energy and agricultural commodity prices. Gold prices posted a more moderate increase during this period. The FAO Food Price Index dropped in November, led by prices of sugar, dairy products, and oils. Brent crude oil prices, averaging around USD 64.7 in October, reached an average of USD 63.8 in the first ten days of December. Throughout the year, commodity prices declined in energy but rose in other items, yet remaining supportive of disinflation in overall terms.
22. The Global Supply Chain Pressure Index was slightly below its historical average in November. The global container index and the container index for China, both of which began to decline in July, took an upturn in November but this proved to be temporary as of the first ten days of December. The basket exchange rate increased at a lower rate in November. During this period, seasonally adjusted manufacturing industry PMI data pointed to a fall in both input and goods prices.
23. Inflation expectations of firms and households improved in November, whereas market participants’ expectations diverged. According to the results of the Survey of Market Participants, the year-end inflation expectation for 2025 was up by 0.4 percentage points to 32.2%. The year-end inflation expectation for 2026 rose by 1.1 percentage points to 23.2%, while expectations for other terms also went up. The 12-month and 24-month-ahead inflation expectations were revised up by 0.2 and 0.3 percentage points to 23.5% and 17.7%, respectively. Meanwhile, the five-year-ahead inflation expectation was measured at 11.3%, with a decline of 0.1 percentage points. As for the expectations of the real sector, the 12-month-ahead annual inflation expectation of firms dropped by 0.6 percentage points to 35.7% in November. In the same period, the 12-month-ahead inflation expectation of households also decreased by 2.2 percentage points to 52.2%. While showing signs of improvement, inflation expectations and pricing behavior continue to pose risks to the disinflation process.
24. Leading indicators signal that the favorable course in food prices continued from November into December. On the unprocessed food front, prices of fresh fruits and vegetables have decreased while the rise in red meat prices partly limits this favorable course. The gradual slowdown in monthly processed food inflation continues. Energy prices are relatively stable due to the correction in fuel prices. Leading indicators suggest milder price increases in the core goods and services groups in December compared to previous month. Underlying inflation indicators are also expected to maintain their downward trend in December. Against this backdrop, leading indicators imply that inflation will remain lower than projected in this month.
Monetary Policy
25. The Monetary Policy Committee (the Committee) has decided to reduce the policy rate (the one-week repo auction rate) from 39.5% to 38%. The Committee has also lowered the Central Bank overnight lending rate from 42.5% to 41% and the overnight borrowing rate from 38% to 36.5%.
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 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.
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.