Levent Gürses
The Central Bank made a significant cut in its policy interest rate, in line with expectations. The one-week repo auction rate was cut by 250 basis points to 40.5 per cent. At its previous meeting, the Central Bank had cut the rate from 46 per cent to 43 per cent.
Meanwhile, the dollar/lira exchange rate hit a new record high following the interest rate cut and the removal of the main opposition CHP’s Istanbul provincial administration by court order, with the newly appointed administration taking office with police support. The dollar reached an all-time high of 41.4303 lira on the evening of Thursday, 11 September. It closed the day at 41.3478 lira. The dollar’s appreciation against the Turkish lira was 1.6 per cent over the last month, 13.5 per cent over the last six months, and 21.9 per cent over the last year as of 11 September.
The interest rate cut and political developments also did not benefit the Istanbul Stock Exchange. The BIST 100 index ended Thursday down 1.92 per cent at 10,382.89 points. The BIST 100 index fell 203.43 points from the previous close, while the banking index lost 2.89 per cent and the holding index lost 2.28 per cent.
As of 11 September, the BIST 100 index has lost 4.12 per cent over the past week and 5.94 per cent over the past month, while rising 10.23 per cent over the past year.
MPC: Food prices and high inertia service items keep upward pressure alive
The Central Bank Monetary Policy Committee (MPC) decision text included the following statements:
“The main trend of inflation slowed in August. While growth exceeded forecasts in the second quarter, final domestic demand was assessed to have remained weak. Recent data indicate that demand conditions are at a disinflationary level. Food prices and services with high inertia are keeping upward pressure on inflation alive. Inflation expectations, pricing behaviour and global developments continue to pose risks to the disinflation process.
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 macroeconomic framework envisaged in the Medium-Term Programme will contribute to this process. The Committee will determine the steps to be taken regarding the policy interest rate in a manner consistent with the intermediate targets, taking into account inflation outcomes, the main trend and expectations, and ensuring the tightness required for disinflation. The magnitude of the steps will be reviewed with an inflation outlook-focused, meeting-based and cautious approach. If the inflation outlook deviates significantly from the intermediate targets, the monetary policy stance will be tightened.
Bürümcekçi: Policy rate may settle at 35.50-36.50 per cent by year-end
Experts assessed the Central Bank’s interest rate decision as follows:
Economist Haluk Bürümcekçi: “While it appears that the CBRT continues to maintain the upper limit of the corridor asymmetrically high against risks, continuing with a step in line with expectations and pricing was a neutral development for the Turkish lira.
In the latest Inflation Report published in August, the CBRT made changes within the framework of its medium-term forecast communication, defining an interim target focused on the end of each year in addition to the forecast path. While the new strategy looks positive on paper, it can be assessed more accurately with implementation. It can be said that the main inflation trend, which has averaged around 2 per cent in the recent period, is sufficient in terms of remaining within the year-end forecast range.
Developments suggest that the Bank needs to act more cautiously than the interest rate reduction path priced in by the markets.
The continued emphasis in the decision text that the magnitude of policy rate steps will be determined based on data and on a meeting-by-meeting basis, coupled with the message that monetary policy stance will be tightened if the inflation outlook diverges significantly from the intermediate targets, suggests that the magnitude of subsequent rate cut decisions may vary depending on developments. In this regard, while we believe that uncertainty regarding the size of the interest rate cut will continue at the October and December meetings, we expect the year-end policy rate to be in the range of 35.50-36.50 per cent.
Özlem Derici Şengül: Inflation trend has slowed but risks remain
Economist Özlem Derici Şengül: “The Central Bank largely met market expectations. The main point of interest is the emphasis placed on inflation in the decision text. The Central Bank’s mention of a slowdown in inflation in August can be seen as a ‘dovish’ signal for the markets.
However, the picture is not one-sided. Pointing to volatility in food prices and high inertia in services, the Central Bank states that inflationary pressures remain strong. This approach conveys the message that ‘inflationary trends have slowed, but risks remain.’
Technically, a new framework has been adopted. The Central Bank has now set intermediate targets rather than forecasts and developed a communication language consistent with these targets. The emphasis on ‘deviation from intermediate targets’ rather than ‘a permanent decline in inflation’ is the clearest indication of this change.
Başlevent: Lowering interest rates to 30% will have a positive impact on the economy
Prof. Dr. Cem Başlevent: “The decision will boost market morale. However, it will not have a major impact on the investment environment or individual preferences. The Central Bank’s decision is already in line with expert forecasts. At the beginning of the year, interest rates approached similar levels, but due to turmoil in politics and the judiciary, interest rates were raised again to 46 per cent. The Central Bank has only now implemented the move it planned months ago.
Depending on the course of inflation in the coming months, if interest rates are lowered to 30 or 20 percent, this could have a positive impact on the economy. The Central Bank will take cautious steps rather than sudden and large cuts, planning to reach its year-end targets with a maximum cut of 300-350 basis points.”
Marek Drimal: We expect the lira to remain positive in the coming months
Societe Generale Central and Eastern Europe, Middle East, Africa Strategist Marek Drimal: “The Central Bank made an interest rate cut that was 50 basis points higher than general expectations. The stabilisation of the foreign exchange market, which likely led to the Monetary Policy Committee’s decision, caused the Turkish Lira to appreciate.
We expect the Turkish Lira to depreciate nominally against the dollar by approximately 1.5% on a monthly basis, with monthly inflation also expected to average around this level between September and December 2025.
We anticipate that total lira returns will remain positive for investors in the coming months due to the continued high interest rates. We expect the CBRT to implement 200 basis point interest rate cuts in October and December as well.
Morgan Stanley: Interest rate to be 37 per cent by the end of 2025, 26 per cent by the end of 2026
Following a visit to Turkey, US investment bank Morgan Stanley published a report predicting that the Central Bank will gradually reduce its policy interest rate to 37 per cent by the end of 2025 and to 26 per cent by the end of 2026. The bank also forecasts that inflation will fall to 30% by the end of 2025 and 21% by the end of 2026.
The report highlights that continuity in monetary and fiscal policies will support economic recovery. It recalls that the Medium-Term Programme (MTP) envisages a more moderate growth path and fiscal discipline to combat inflation. Morgan Stanley emphasises that the fiscal tightening that began in the second quarter of 2025 is a positive signal in terms of domestic demand balance and the disinflation process.
HSBC raised its USD/TRY forecast from 42 to 44
HSBC revised its year-end USD/TRY forecast upwards, citing lower real interest rates and the absence of real exchange rate appreciation. Murat Toprak, one of the bank’s strategists, stated in his note that year-end expectations had risen from 42 to 44. Toprak said that the Central Bank of the Republic of Turkey’s exchange rate policy continued to keep the TL stable, but that its implicit target for real Turkish lira appreciation ‘appeared looser than last year.’
According to a Bloomberg report, the 8 September note stated that political developments continue to pose a risk for the Turkish lira. The bank forecasts that the real interest rate will fall to around 5 per cent by the end of 2025 and remain in positive territory at 3-4 per cent in 2026.
Commerzbank: Turkish Lira losses may continue
Commerzbank economist Tatha Ghose said that despite daily interventions, the Turkish lira’s depreciation may not slow down. Ghose emphasised that movements in the dollar/TL exchange rate indicate constant interventions, which further accelerate the lira’s depreciation.
According to Ghose, the fluctuations seen in the USD/TRY exchange rate during the day became apparent after the main opposition party CHP’s Istanbul provincial administration was removed from office by a court decision last week. The economist said, ‘The typical picture during periods of daily intervention is for the dollar to rise by breaking through the defence lines against the lira one by one.’
ING: Dollar to reach 45 TL by end of 2025, 53 TL by end of 2026
ING has updated its dollar and inflation forecasts for Turkey. In its latest report, ING raised its inflation forecast for Turkey to 30 per cent by the end of 2025. While the dollar is expected to rise to 45 TL by the end of the year, the dollar forecast for 2026 has been updated to 53 TL.
The report published by the bank stated that the high inflation data announced in Turkey and recent political and institutional developments could complicate the Central Bank’s monetary policy steps.
ING expects the policy rate to fall to 37 per cent by the end of the year. ING stated that August’s inflation figures reveal how challenging the disinflation process has been and raised its inflation forecast for the end of 2025 from 29.5 per cent to 30 per cent. Emphasising that domestic demand remains robust, ING raised its growth forecast for 2025 from 2.7 per cent to 3.3 per cent. The forecast for 2026 was also raised from 3.5 per cent to 4 per cent.
Deutsche Bank revises Turkish bonds upwards
In their latest report, Deutsche Bank analysts shared limited upward yield revisions for the Turkish bond market. According to the analysts, the yield on two-year bonds will rise by 50 basis points to 34 per cent by the end of the year, with limited updates made for other maturities.
Deutsche Bank noted that the Turkish market was relatively calm during the summer months, with falling inflation and foreign inflows making Turkey stand out among emerging market assets. However, it was emphasised that recent developments such as strong GDP data, inflation increases driven by services and food, and the cancellation of the CHP Istanbul Congress have negatively impacted the markets.
Fitch forecasts 3.5% growth in 2025 and 2026
Fitch has raised its global economic growth forecasts. In its Global Economic Outlook Report, it projected that the world economy would grow by 2.4% this year and 2.3% next year. It estimated that the Turkish economy would grow by 3.5% this year and next year.
TEPRF: Domestic political uncertainty threatens the economy
The Turkish Economic Policy Research Foundation (TEPRF) stated in its latest Monetary Policy Assessment Note that the uncertainty created by domestic political developments has increased risks to the economy.
TEPRF emphasised that the economic risks it had previously highlighted remain valid. The report noted that inflation expectations remain uncontrolled, increases in public sector-determined goods and services prices continue, the budget deficit remains high, and exporters face challenges in global competition with China.
The TEPRF Monetary Policy Working Group recommended that the policy interest rate be kept unchanged at 43 per cent in line with these assessments. TEPRF stated that a comprehensive economic programme must be implemented as soon as possible to permanently reduce inflation. The report emphasised that relying solely on interest rate policy is not sufficient and that a coordinated and holistic approach is essential.
Medium-Term Programme: A 3-year roadmap for the economy
The Presidential Decree approving the Medium-Term Programme (MTP), which outlines Turkey’s three-year targets and policies, was published in the Official Gazette. Prepared by the Ministry of Treasury and Finance and the Presidency of Strategy and Budget, the MTP covers the period 2026-2028 and sets out key economic indicators and targets. Accordingly, the growth forecast for this year is 3.3 per cent. The economy is projected to grow by 3.8 per cent in 2026, 4.3 per cent in 2027, and 5 per cent in 2028.
Inflation is expected to be 28.5 per cent at the end of this year, while the inflation target has been set at 16 per cent for next year, 9 per cent for 2027 and 8 per cent for 2028. The budget deficit as a percentage of gross domestic product is projected to be 3.5 per cent in 2026 and 2.8 per cent at the end of the programme period.
The programme states that the unemployment rate is expected to be 8.5 per cent at the end of this year, with a target of 8.4 per cent for next year, 8.2 per cent for 2027 and 7.8 per cent for 2028.
Exports are expected to reach $273.8 billion by the end of 2025, with targets of $282 billion in 2026, $294 billion in 2027, and $308.5 billion by the end of the programme.
Imports are projected to reach $367 billion by the end of this year, $378 billion in 2026, $393 billion in 2027, and $410.5 billion in 2028.
Criticism is harsh: Black holes will now swallow bridges
CHP Manisa MP Ahmet Vehbi Bakırlıoğlu criticised the data included in the Medium-Term Programme. Emphasising that city hospitals have swallowed 76 billion in eight months, Bakırlıoğlu said, “For years, we have been building bridges, motorways and tunnels under the PPP model, deceiving citizens by saying “it won’t cost us a penny”. Then they couldn’t keep up with the funding for these projects. Only 76 billion lira was paid to city hospitals in eight months. We always called PPPs black holes. Now that black hole will swallow the bridges.”
According to the Medium-Term Programme (MTP) covering the years 2026–2028, the government plans to reorganise public-private partnership (PPP) projects to increase the cost-effectiveness of contract investments that burden the budget. Furthermore, the MTP projects that privatisation revenues will increase from 18.1 billion TL in 2024 to 21 billion TL in 2025 and 185 billion TL in 2026.
Bakırlıoğlu made the following assessments:
“This year alone, 200 billion TL was paid to PPP project companies. From 2017 to the end of 2024, the amount transferred to these companies reached 384.1 billion TL. City hospitals received 76 billion lira in rent and service fees in the first eight months of this year alone. In other words, the Ministry of Health transferred 11 lira out of every 100 lira spent from its budget to city hospitals. According to a study by the Ankara Medical Association, this money could have been used to open at least 78 state hospitals with 100 beds each.”
Prof. Dr. Hayri Kozanoğlu: The Medium-Term Programme (MTP) continues to peddle illusions
Criticising the Medium-Term Programme (MTP) covering the 2026-2028 period, Prof. Dr. Hayri Kozanoğlu wrote in Birgün newspaper: “MTPs are not policy documents that guide decision-makers in the economy and facilitate their future forecasts; they are known as wishful thinking that sells “pink dreams”. To take such a document seriously, it is expected to first take stock of the past and explain the reasons for the unmet targets. For example, last year’s MTP projected 4.0 per cent growth for 2025 and 17.5 per cent consumer inflation at the end of the year. Now, growth for 2025 is estimated at 3.3 per cent and inflation at 28.5 per cent. On both fronts, missing the target in a negative direction is not seen as a weakness. On the contrary, a success story is being written with the argument that positive growth has been achieved while inflation has fallen compared to a year ago,” he said.
The highest monthly real return in August was in the BIST 100 index
TÜİK announced the real return rates of financial investment instruments for August. Accordingly, the highest monthly real return, when adjusted by the domestic producer price index (Yİ-ÜFE), was 4.15 per cent, and when adjusted by the consumer price index (TÜFE), it was 4.6 per cent in the BIST 100 index.
When adjusted for Yİ-ÜFE, investment instruments provided investors with real returns of 0.77% for deposit interest (gross) and 0.71% for government domestic debt securities (DİBS), while bullion gold lost 0.33%, the dollar lost 0.95% and the euro lost 1.39% for investors.
When adjusted for the CPI, deposit interest (gross) provided a real return of 1.21 per cent, DİBS provided 1.15 per cent, and gold bullion provided 0.10 per cent, while the dollar caused a loss of 0.52 per cent and the euro caused a loss of 0.96 per cent.
Industrial production fell by 1.8 per cent in July
In July, industrial production declined on a monthly basis but continued to rise on an annual basis. According to TÜİK data, the seasonally and calendar-adjusted industrial production index decreased by 1.8 per cent compared to the previous month. Compared to the same period last year, industrial production increased by 5 per cent.
The sub-sectors of industry performed differently. While the mining and quarrying sector saw a 0.5% decline on an annual basis, the manufacturing industry recorded a 5.5% increase and the electricity, gas, steam and air conditioning production and distribution sector recorded a 5.8% increase. There were fluctuations between sectors on a monthly basis. The mining and quarrying index fell by 1.5 per cent, and the manufacturing industry declined by 2.3 per cent.
Gold prices are breaking record after record
The price of gold per ounce hit a new record high amid rising expectations of interest rate cuts and a weakening dollar. At the close on 11 September, the price of gold per ounce for December delivery reached $3,669. Gold, a ‘safe haven’ asset, continues to break records due to geopolitical risks, rising expectations of interest rate cuts, and the impact of increasing criticism of the country’s payment capacity as the US debt exceeds $37 trillion.
The price of gold per ounce has increased by 8 per cent in the last month and by more than 44 per cent in the last year. In 2024, the price of gold per ounce had increased by 27 per cent.
On the other hand, the US economy’s debt exceeding $37 trillion is also contributing to gold’s appreciation in value due to the concerns it raises. It is noteworthy that the interest paid on this debt exceeds the US’s military spending.
ASELSAN signs a 1.65 billion euro contract
A contract worth a total of 1.65 billion euros was signed between Military Electronic Industries S.A. (ASELSAN) and the Presidency of Defence Industries of the Republic of Turkey for the supply of air defence systems.
According to a statement made by the company to the Public Disclosure Platform (KAP), a contract worth a total of 1.65 billion euros was signed between the company and the Presidency of Defence Industries for the supply of air defence systems. It was stated that deliveries under the contract would be made between 2027 and 2031.
Alarko Agriculture Group opens new factory in Konya
Alarko Agricultural Group, which is involved in all stages of the agricultural sector value chain with its investments in modern greenhouse cultivation, seed improvement, fertiliser production and dried food, has tripled its dried food production capacity with its new factory in Konya Ereğli OSB, which has a raw material processing capacity of 5,100 tonnes.
Ümit N. Yıldız, Chairman of the Executive Board of Alarko Group of Companies, said, ‘In line with our new strategic goals, our total investments in the agricultural sector, which we entered in 2023, have reached $300 million, and we have created 1,200 jobs.’
256 million Euro agreement between Tofaş and Stellantis
The management teams of Tofaş and Stellantis have signed a production agreement for the production and distribution rights in Turkey of the K9 model’s light commercial vehicle and Combi versions for Stellantis brands such as Fiat, Opel, Citroën, and Peugeot. The project, which is expected to be implemented in the third quarter of 2026 with an investment of up to 256 million euros, will have an annual production capacity of 150,000 units.
Turkey breaks 12-year record in cruise tourism
In the first seven months of 2025, the number of cruise passengers arriving at Turkish ports reached 1,058,752, the highest level in the last 12 years. Passenger traffic increased by 18.9 per cent compared to the same period last year. According to the data, the port of Kuşadası maintained its lead with 516,930 passengers, while the port of Istanbul followed closely with 301,000 passengers. Izmir and Bodrum are also among the other important centres that stand out with their increasing cruise traffic.
According to the 2025 report published by the Cruise Lines International Association (CLIA), the cruise sector has a global economic size exceeding $168 billion.
Turkey sets a new record in exports to Germany
Turkey reached its highest ever level of exports to Germany in the January-August period, with exports totalling $13.1 billion. This figure was recorded at $11.97 billion in the same period last year.
According to data from the Turkish Exporters Assembly (TİM), the country’s total exports increased by 4.3 per cent compared to the same period last year, reaching $178.1 billion in the first eight months of the year.
Germany maintained its leading position in Turkey’s exports. Sales to the country rose by 9.4 per cent year-on-year in the January-August period. Germany was followed by the United Kingdom with 9 billion dollars, the United States with 8.5 billion dollars, Italy with 8.2 billion dollars and Spain with 6.8 billion dollars.
ISO Export Climate Index at 15-month high
The Turkey Manufacturing Sector Export Climate Index rose to 51.9 in August, signalling a moderate improvement in external demand conditions. The index stood at 51.9 in August, its highest level since May 2024. All figures above 50 indicate an improvement in the export climate, while values below 50 indicate a deterioration.
Generation Z protests in Nepal: Government falls, army takes to the streets
Nepal, in South Asia, has been rocked by Generation Z protests. In this Himalayan nation of 30 million, the state of the economy and allegations of corruption have pushed young people to the brink of revolt.
Following allegations of corruption in Nepal, the government banned social media platforms including Facebook, Instagram, WhatsApp, YouTube, X, LinkedIn and Reddit, prompting thousands of people, mainly from Generation Z, to take to the streets. Attacks were carried out on the homes of political figures and ministers, and protesters set fire to the federal parliament building, the high court building, and two residences of Nepalese Prime Minister Khadga Prasad Sharma Oli. At least 19 people were killed and more than 400 were injured in the ensuing violence.
The Nepalese army evacuated ministers from their residences by helicopter due to the escalating violence, and Prime Minister Oli announced his resignation following fierce protests and backlash against the government.
The country’s economy has become increasingly dependent on remittances sent home by Nepalese expatriates over the past 30 years. With unemployment among 15-25 year olds reaching 20.8 per cent, according to World Bank data, the luxurious lifestyles of politicians’ children are drawing criticism.
Macron gives Sebastien Lecornu a mandate to form a government
French President Emmanuel Macron appointed Sébastien Lecornu as prime minister following the fall of François Bayrou’s government. Lecornu, who served as defence minister in the previous cabinet, will become the country’s fifth prime minister in two years.
French President Macron appointed Bayrou as prime minister on 13 December 2024. Budget negotiations have become one of the main points of contention between the government and the opposition in a country struggling with public debt.
Bayrou had proposed spending cuts and tax increases worth €44 billion to reduce France’s budget deficit for 2026 from the expected 5.4 per cent this year to 4.6 per cent. He also made an unpopular proposal to reduce costs in Europe’s second-largest economy by eliminating two public holidays. Bayrou had announced that he would bring the government to a vote of confidence before the debate on the 2026 budget, which had been met with opposition from the French people. However, the government failed to win the vote of confidence and fell.
The European Central Bank kept its policy rate unchanged
The European Central Bank (ECB) kept interest rates unchanged in line with market expectations, anticipating that uncertainty surrounding trade between Europe and the US would dissipate following seven consecutive rate cuts. The ECB left its deposit rate at 2 per cent. The policy rate was kept steady at 2.15 per cent, while the overnight lending rate was left at 2.40 per cent.
Following the decision, ECB President Christine Lagarde appeared before the cameras for a press conference. Noting that the economy was showing resilience, Lagarde said they expected the coming period to be uncertain, citing tariffs as the reason. Lagarde also stated that the risks to the economic outlook were skewed to the downside. Saying that they needed to strengthen the Eurozone and its economy, Lagarde said that the ECB needed to be more productive, competitive and resilient.
Inflation accelerated in the US in August
The US Consumer Price Index rose by 0.4 per cent month-on-month in August, exceeding expectations, and by 2.9 per cent year-on-year, in line with expectations. Market expectations were for inflation to be 0.3 per cent month-on-month. The CPI had risen by 0.2 per cent in July.
The CPI in the country also recorded a 2.9 per cent increase year-on-year in August. Annual inflation reached its highest level since January during this period. Annual inflation, which was in line with market expectations, was 2.7 per cent in July.
Core CPI, which excludes energy and food prices, rose by 0.3 per cent monthly and 3.1 per cent annually. Core inflation was in line with market expectations during this period.
Other significant developments in the Turkish and global economies are as follows:
In Turkey, electricity production in August increased by 4.1 per cent compared to the same month last year, with approximately 42 per cent of production coming from renewable energy sources. Electricity consumption also rose by 3 per cent due to the impact of air conditioning use.
The Turkish Statistical Institute (TurkStat) announced that in 2024, service exports increased by 11 per cent compared to the previous year to $117.2 billion, while service imports increased by 12 per cent to $55.8 billion.
The Treasury and Finance Ministry borrowed $2 billion through a 10-year dollar-denominated bond issue in international markets. The bond’s final yield was 7%.
Garanti BBVA and Akbank transferred their portfolios of overdue receivables, totalling over 2.9 billion Turkish lira, to asset management companies. The two banks earned a total of 566 million Turkish lira from these sales.
JPMorgan gave pessimistic signals about the US stock markets. The bank noted that the US Federal Reserve’s next move could dampen investor enthusiasm and that an interest rate cut could create a ‘sell the news’ effect.
US President Donald Trump called on the European Union to impose customs duties of up to 100 per cent on imports from India and China. It is noted that this step could shake global trade and geopolitical balances.
European Commission President Ursula von der Leyen announced that the 19th package of sanctions against Russia is being worked on. Von der Leyen noted that this package includes the phased and accelerated removal of Russian fossil fuels, the oil shadow fleet and sanctions against third countries.
US District Court Judge Jia Cobb has temporarily blocked President Donald Trump’s decision to remove Lisa Cook from the US Federal Reserve Board of Governors. The US administration has appealed the court’s decision.