Turkey cuts interest rates despite $18bn funds scandal

By the Editorial Team · Friday, October 23, 2026

Turkey’s central bank cut its benchmark interest rate from 37 percent to 36 percent for the first time since the US-Israel-Iran conflict began, citing easing inflation and weakening domestic demand. The move signals a gradual monetary policy easing amid economic uncertainties, including a sharp drop in consumer confidence linked to a major investment fund scandal and ongoing geopolitical tensions.

Turkey’s central bank reduced its benchmark one-week repo rate from 37 percent to 36 percent on Tuesday, marking the first interest rate cut since the outbreak of the conflict between the United States and Israel involving Iran. The decision comes amid easing inflation and declining consumer confidence, providing policymakers with an opportunity to relax monetary policy.

Annual inflation in Turkey decreased to 29.7 percent in September, the lowest level in nearly five years. Despite the rate cut, the Turkish lira remained largely stable in the immediate aftermath of the announcement. The central bank’s monetary policy committee indicated that the decline in inflation was supported by weaker domestic demand, which persisted despite elevated oil prices due to ongoing geopolitical tensions linked to the US-Israeli war in Iran.

Consumer confidence also took a notable hit last month, dropping by 7.7 percent to 84.8—the steepest decline in three years—according to official data released on Tuesday. Analysts suggest that the sharp fall in confidence was influenced in part by the recent collapse of several investment funds involved in an alleged $18 billion Ponzi-type scheme. The scandal, widely referred to as “Fonzi,” has raised concerns about regulatory oversight and has endangered the savings of hundreds of thousands of investors.

The turmoil in Turkish capital markets began in September, when a number of investment funds faced difficulties meeting investor withdrawals, leading to a broader run on assets. In response, the central bank intervened by increasing liquidity support through higher repo funding and a tenfold expansion of banks’ borrowing limits. Despite these measures, finance minister Mehmet Şimşek acknowledged the need to regain public trust in the country’s economic governance.

Central bank governor Fatih Karahan has downplayed the risk of contagion from the crisis, asserting earlier this month that market indicators do not signal a broader financial disturbance. Nonetheless, the bank underscored its readiness to implement additional macroprudential tools should unexpected developments arise in credit or deposit markets, aiming to maintain the effectiveness of monetary policy transmission.

Looking ahead, most economists forecast a further easing at the central bank’s December meeting, with expectations of a 100 basis-point rate cut that would reduce the policy rate to 35 percent by year-end. JPMorgan Chase projects that inflation will conclude 2026 around 29.5 percent, reflecting continued challenges stemming from energy price volatility amid sustained geopolitical uncertainties.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.