According to the European Economic Forecast Report published by the European Commission, the Turkish economy is projected to gain momentum with growth of 3.4% in 2026 and 4.0% in 2027. Inflation is expected to decline gradually over the next two years''.
An Overview of 2025
Developments in the Turkish Economy
Financial stability-focused regulatory measures accompanying monetary tightening contributed to the rebalancing of domestic demand and limited the risk of overheating in economic activity. The Turkish economy maintained its rebalancing process in the fourth quarter of 2025, while the fight against inflation continued in a favorable direction.
Within the scope of its monetary policy simplification strategy, the Central Bank of the Republic of Türkiye (CBRT) completely terminated the protected deposit scheme (KKM) in 2025.
In 2025, the Central Bank of the Republic of Türkiye (CBRT) maintained the tight monetary policy stance initiated in mid-2023 within a cautious framework, despite the downward trend in inflation. Throughout the year, gradual policy rate cuts were implemented, and the easing cycle was managed prudently due to uncertainties regarding the inflation outlook. A stronger-than-expected decline in inflation created room for the central bank to reduce interest rates. As a result, access to credit improved relatively and supported economic growth. The cautious pace of rate cuts reflected the CBRT's commitment to safeguarding the disinflation process.
Throughout 2025, inflation displayed a significant downward trend compared to 2024 levels. Annual inflation, which stood at 44.4% at the end of 2024, gradually declined throughout the year and fell to 30.9% in December'4.
Within the framework of its monetary policy stance, the CBRT accelerated rate cuts particularly in the second half of the year. The policy rate was reduced by a total of 350 basis points in September and October. Taking into account the slowdown in the underlying trend of inflation in August and domestic demand conditions, the policy rate was lowered from 43% to 40.5% in September. According to the CBRT's latest Inflation Report for the final quarter, inflation is projected to reach 13"19% by the end of 2026 with a 70% probability"5.
At the Monetary Policy Committee meeting held on December 11, 2025, the CBRT reduced the policy rate by 150 basis points to 38%. Accordingly, rate cuts continued uninterrupted across four meetings in the second half of the year, bringing the policy rate down from 46% to 38%.
Within the scope of regulatory measures accompanying monetary policy, significant changes were introduced to the protected deposit scheme. As of August 23, 2025, the opening and renewal of protected deposit scheme accounts were discontinued.
In terms of financial indicators, the disinflation process and the policies implemented led to a notable decline in Türkiye's credit risk premium. The five-year CDS (credit default swap) decreased by 22.1%16. CDS spreads fell to their lowest levels since May 2018, which positively affected external borrowing costs. During 2025, international credit rating agencies revised Türkiye's outlook upward. In this context, Moody's upgraded Türkiye's credit rating from "B1" to "Ba3" in July 2025 and assigned a stable outlook. These developments reflected an improvement in global investor sentiment toward Türkiye17.
Within the framework of macroeconomic indicators, CBRT's gross reserves reached USD 184.0 billion by the end of the year. Türkiye's foreign trade deficit amounted to USD 92.1 billion in 2025, mainly driven by import-led increases. As of February 6, it was decided not to implement inflation accounting due to the absence of the required legal conditions18.
Overall, 2025 was a year in which the disinflation process continued in the Turkish economy, gradual interest rate cuts were implemented, economic growth remained in the range of approximately 3'3.5%, and the country's risk premium declined significantly. The International Monetary Fund (IMF) raised its growth forecast for Türkiye to 3.5% for 2025 and revised its projection for 2026 to 3.7%. Monetary policy was conducted through cautious rate cuts by the Central Bank, and while the downward trend in inflation continued, uncertainties regarding the achievement of target levels persisted. Looking ahead, a similar policy mix is expected to support the continuation of a positive economic outlook18.
