19.03.2026 10:10
The Central Bank of the Republic of Turkey sent an open letter to the government due to the inflation for 2025 exceeding the 5% target and the uncertainty range. The bank stated that supply-side shocks, rigidity in pricing behaviors, and expectations not aligning perfectly with the target were effective in the target deviation, while also conveying the message that a tight monetary policy stance would continue until price stability is achieved.
Within the scope of Article 42 of the Central Bank Law No. 1211, the Central Bank of the Republic of Turkey, which is obliged to inform the government in writing about the reasons for deviations and the measures to be taken in case the inflation target is not achieved, published its open letter regarding the year 2025.
The letter emphasized that the disinflation process, which started in June 2024, continued in 2025, supported by a tight monetary stance, tight financial conditions, and the balancing of demand conditions. However, it was stated that supply-side developments, rigidity in pricing behaviors, and inflation expectations not aligning fully with targets limited the speed of disinflation.
The Central Bank's statements are as follows:
According to Article 42 of the Central Bank Law No. 1211, the Central Bank of the Republic of Turkey (CBRT) is required to inform the Government in writing about the reasons for deviations from the target and the measures to be taken, and to announce this to the public. The inflation for the year 2025 has occurred above the uncertainty range set around the target. This letter summarizes the reasons for the deviation and the policies implemented and to be implemented to bring inflation back closer to the target path. Factors Determining Inflation in 2025 The disinflation process, which started in June 2024, continued in 2025; the tight monetary stance, tight financial conditions, and the balancing of demand conditions supported this process. However, supply-side developments, rigidities in pricing behaviors, and expectations not fully aligning with targets limited the speed of disinflation. Global commodity prices supported the inflation outlook in the first half of the year; the decline in energy and agricultural commodity prices provided a positive contribution. Energy price volatility due to geopolitical developments and increases in some metal prices created periodic cost pressures. The normalization of global supply chains and the decrease in transportation costs partially balanced these effects.
DROUGHT AND FROST INCREASED FOOD PRICES
In domestic supply conditions, especially drought and frost events have created upward pressure on inflation through food prices. Decreases in agricultural production caused price fluctuations in the third quarter; these developments temporarily slowed down the disinflation process based on expectations. This volatility in food prices has led to temporary distortions in the main trend of inflation, while it has been observed that these effects weakened somewhat with the mild weather conditions in the last months of the year.
In 2025, the impact of exchange rate developments on inflation has remained more limited compared to previous periods. The relatively stable course of the Turkish lira and the maintenance of demand conditions at a disinflationary level have limited exchange rate pass-through. Price increases have remained high in service items such as rent and education, where the tendency to index to past inflation is strong. The compensatory price adjustments observed after the ceiling price regulations applied in the past in these items have also contributed to the high annual increase rates. However, especially the decrease in rent inflation has become more pronounced towards the end of the year. The widespread appearance of price increases in the services group has slowed down the decline in core inflation indicators. Adjustments made throughout the year in administered and guided prices have also had an impact on inflation. Notably, price developments in tobacco products, natural gas, and tap water have stood out.
DEMAND CONDITIONS SUPPORTED DISINFLATION
Demand conditions have remained at disinflationary levels throughout the year. The balancing of demand has occurred gradually due to activities related to housing construction after the earthquake and trends in some durable consumer goods.
While inflation expectations have shown a declining trend for most sectors throughout the year, they have continued to remain above targets. This situation has limited the speed of disinflation. The improvement observed in inflation expectations has supported the medium-term effectiveness of monetary policy. However, the limited pace of improvement in expectations has maintained its importance for the continuity of the disinflation process.
FISCAL DISCIPLINE CONTRIBUTED TO DISINFLATION
The maintenance of fiscal discipline and the strong coordination provided by monetary policy have made significant contributions to the disinflation process in 2025. The budget deficit as a ratio to national income has been realized at 2.9%.
Overall, the rigidity in pricing behaviors, the limited alignment of expectations with targets, and periodic supply shocks have been effective in the inflation occurring above the target in 2025. In contrast, the tight monetary stance, tight financial conditions, and the balancing of demand conditions have supported the disinflation process; a significant improvement in the main trend of inflation has been achieved in the last quarter of the year.
Monetary Policy Strategy to Ensure Price Stability The CBRT has determined its monetary policy stance throughout 2025 in a way that will provide the tightness required for disinflation, taking into account inflation realizations, the main trend, and expectations. In this framework, monetary policy decisions have been made with an inflation outlook focus, on a meeting basis, and with a cautious approach.
The CBRT has reduced the one-week repo auction interest rate, which is the policy rate, by a total of 500 basis points to 42.5% in January and March. In mid-March, to limit the risks that developments in financial markets could pose to the inflation outlook, the overnight lending interest rate was raised to 46%. Additionally, a pause was taken in one-week repo auctions, and funding was provided from the overnight lending interest rate. In April, the CBRT highlighted the effects of developments in financial markets on the main trend of inflation and raised the policy rate to 46%; the overnight lending interest rate to 49%, and the overnight borrowing interest rate to 44.5%. However, it announced that one-week repo auctions would resume. The CBRT kept the policy rate unchanged in June and subsequently reduced it by a total of 800 basis points to 38% by December 2025. In January 2026, the CBRT made a limited reduction, bringing the policy rate to 37%.
MACROPRUDENTIAL STEPS CONTINUED
To enhance the functionality of the market mechanism, strengthen macro-financial stability, and support the monetary transmission mechanism, the CBRT continued its macroprudential policy implementations in 2025. Within the framework of macroprudential policy, the termination of currency-protected deposit accounts and practices aimed at increasing the share of Turkish lira deposits have supported monetary transmission.
Credit developments have been closely monitored; necessary measures have been implemented against the risk of deviation from the projected path.
The primary objective of the Central Bank of the Republic of Turkey (CBRT) is to ensure and maintain price stability. In the event of a significant deterioration in the inflation outlook, the monetary policy stance will be tightened. If there are developments in the credit and deposit markets that deviate from expectations, additional macroprudential measures will be implemented.
We present for your information the "2026 Inflation Report-I," which comprehensively addresses developments regarding inflation and monetary policy as well as our medium-term forecasts, published on our website on February 12, along with the "2026 Monetary Policy" document, which explains in more detail the monetary policy to be implemented to achieve the inflation target in the short and medium term.