Turkey’s central bank reduced its main interest rate for the first time since the onset of the Iran war, reflecting a slowdown in inflation to its lowest level in nearly five years. On Thursday, the Monetary Policy Committee, chaired by Governor Fatih Karahan, lowered the one-week repo rate by one percentage point to 36 percent from 37 percent. Alongside this, the overnight lending rate was cut to 39 percent from 40 percent, and the overnight borrowing rate was trimmed to 34.5 percent from 35.5 percent.

The committee emphasized a cautious approach, stating that future policy decisions will be made prudently on a meeting-by-meeting basis with a focus on the inflation outlook. Annual inflation in Turkey eased to 29.7 percent in October, marking its slowest pace since November 2021. The central bank noted that leading indicators point to a deceleration in the underlying inflation trend.

Economic activity and consumer demand have both moderated, though the bank acknowledged ongoing inflationary pressures linked to the Iran war, which continue to pose risks to the economic outlook. Despite these challenges, the central bank’s statement suggested an openness to additional rate cuts later this year.

Zumrut Imamoglu, senior Turkey economist at Nomura Holdings, said the trajectory of interest rates will depend heavily on upcoming inflation data, with the possibility of smaller adjustments or pauses between cuts. Nomura predicts that the central bank may implement another 100 basis-point reduction at its next scheduled meeting on December 10.