Key points
- The policy rate was cut from 37% to 36%, the overnight lending rate from 40% to 39%, and the overnight borrowing rate from 35.5% to 34.5%. This is the first cut since January 2026.
- The move was in line with the 36% expectation in the Survey of Market Participants, implying a 0 bp surprise.
- Annual CPI fell from 31.51% in August to 29.73% in September. That is still above the Inflation Report's 28% year-end forecast and the 24% interim target.
- Using the 23.89% 12-month-ahead survey expectation, the ex-ante real policy rate is about 9.77%; the ex-post real rate is 4.83%.
- Survey participants expect the rate to fall to 35% at the 10 December meeting and to 29.01% in 12 months.
The decision
The Committee cut the one-week repo auction rate, its policy rate, from 37% to 36%. It lowered the overnight lending rate to 39% and the overnight borrowing rate to 34.5%. The corridor's shape is unchanged: 300 bp above and 150 bp below the policy rate. This is the first cut after five holds between March and September, following a 100 bp cut in January 2026. The October Survey of Market Participants expected 36% for this meeting, so there was no surprise.
Effective funding is less straightforward than the headline rate. According to the Inflation Report, one-week repo auctions were suspended from 2 March. The weighted average funding cost was therefore set at the 40% overnight lending rate, the top of the corridor. The CBRT announced on 23 August that weekly repo auctions would resume. On 17 September it said weekly repo funding would be increased and collateral haircuts reduced. These steps may indicate that funding is shifting back toward the policy rate. If so, the actual easing could exceed 100 bp. However, the current weighted average funding cost is not included in our inputs, so the size of the effective easing cannot be confirmed.
Changes in the statement
Most of the statement was retained (88% similarity to the previous text), but a few changes matter. The Committee strengthened 'suggest that the underlying trend of inflation is decelerating' to 'confirm the deceleration in the underlying trend'. This suggests the cut rests on greater confidence that disinflation is durable. It also kept its emphasis that domestic demand 'remains weak'.
The key change is in forward guidance. 'Monetary policy decisions are made' was replaced with 'The size and timing of policy steps will be decided'. The future tense and the reference to 'steps' may signal a gradual easing cycle rather than a one-off cut. The 'size and timing' wording keeps room to vary the pace with the data.
The risk language, by contrast, became firmer. 'Geopolitical developments' became 'ongoing geopolitical tensions' that 'continue to pose' an upside risk. The pledge to tighten in case of a 'significant and persistent deterioration' and the emphasis on vigilance remain intact. Overall reading: easing has started, but within a cautious framework.
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confirm the deceleration in the underlying trend of inflation
Replacing 'suggest' with 'confirm' signals greater confidence in durable disinflation and underpins the rate cut.dovish
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The size and timing of policy steps will be decided prudently on a meeting-by-meeting basis
The forward-looking reference to 'steps' points to a gradual easing cycle while keeping flexibility on pace.dovish
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indicate that domestic demand remains weak
Continued weak demand is presented as a disinflationary force that supports easing.dovish
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due to ongoing geopolitical tensions continue to pose an upside risk
Recasting geopolitical 'developments' as 'ongoing tensions' signals that the Committee sees the energy-driven risk as more persistent, tempering the dovish move.hawkish
Inflation
Annual CPI fell to 29.73% in September 2026 from 31.51% in August, a decline of 1.78 points, with monthly inflation at 1.84%. Part of the drop is mechanical. A high base from September 2025, when monthly inflation was 3.23%, dropped out of the annual figure. The September meeting summary had also flagged that university fee increases, spread over August and September this year, would mechanically lower September inflation through education services. September sub-component and underlying-trend data are not in our inputs, so we cannot separate the lasting part of the decline.
As of August, goods inflation was around 26% and services inflation around 40%. The B index stood at 30.68% and the C index at 30.07%. Inflation Report 2026-III forecasts 28% for year-end against a 24% interim target. The survey's year-end expectation is 29.63%. This suggests reaching the Report's forecast path over October–December will be challenging, and the interim target is likely to be overshot.
Expectations
In the October Survey of Market Participants, the 12-month-ahead inflation expectation edged up from 23.70% to 23.89%. The 24-month-ahead expectation eased from 18.32% to 17.94%. The end-2027 expectation, at 23.33%, sits well above the Report's 15% forecast and interim target. The five-year-ahead expectation is 12.17%. That appears higher than the 11.1% August reading cited in the September summary, though September data are not available.
Sectoral expectations improved. Firms' 12-month-ahead expectation fell from 32.50% to 31.80%, and households' from 45.60% to 43.75%. Based on market expectations, the ex-ante real policy rate is about 9.77%, and the ex-post real rate is 4.83%. Real rates remain clearly positive. This allows the Committee to frame the cut as consistent with a tight stance. However, household and corporate expectations remain well above both current inflation and market expectations.
Economic outlook
On demand, the last meeting summary showed GDP growing 2.3% year-on-year and 1.1% quarter-on-quarter in Q2. Private consumption, however, contracted markedly on a quarterly basis. Industrial production fell 1.0% month-on-month in July, and unemployment rose to 8.1%. The Committee again stated that domestic demand remains weak. The October survey puts growth expectations at 2.9% for 2026 and 3.9% for 2027.
Financial conditions saw some loosening steps. On 17 September, the CBRT expanded liquidity facilities, citing 'developments in financial markets'; the specifics are not in our inputs. On 1 October, it raised the monthly growth cap for SME loans from 4.5% to 5% and lowered blocking rates on TL reserve requirements. Retail loan growth had slowed to a 2% four-week average according to the September summary.
Externally, energy remains decisive. Brent averaged 103 dollars in the first ten days of September, and Hormuz-related risks persisted. The Committee stressed that geopolitical tensions are 'ongoing'. The 12-month current account deficit stood at 38.9 billion dollars in June, gross reserves at 184.2 billion dollars as of 4 September, and CDS at 220 bp on 9 September. Later data are not in our inputs.
Risks
Upside risks: Energy prices may stay high because of geopolitical tensions and pass through to transport services via fuel. Agricultural commodity prices are rising on El Niño and supply concerns. Services inflation remains sticky, and the end-2027 expectation, at 23.33%, is far from target. The macroprudential and liquidity easing could also revive credit growth more than intended, which warrants monitoring.
Downside risks: As the Committee stressed, weak domestic demand and falling employment could limit the pass-through of supply shocks and speed up disinflation. The conditional guidance is explicit: the stance will be tightened in case of a 'significant and persistent deterioration'. Decisions will also be taken prudently on a meeting-by-meeting basis, meaning easing is not on autopilot.
Next meeting
Base case: Cut −100 bp · medium confidence · 10 December 2026
The next MPC meeting is on 10 December 2026. Our base case is another 100 bp cut, consistent with the statement's emphasis on 'steps' and the 35% survey expectation. Confidence is medium, given the 'size and timing' flexibility and the retained cautious language.
Several data points could change this view. First, October and November inflation: the survey expects 2.11% monthly for October and 1.18% for November. Prints well above these, or a renewed rise in the underlying trend, would raise the odds of a pause or a smaller step. Second, energy prices and geopolitics. Third, survey expectations, especially the 12-month and end-2027 readings. Fourth, any revisions to forecasts and interim targets in the next Inflation Report. The summary of this meeting is due within five business days and should shed more light on the Committee's reasoning.
Generated with claude-opus-5-5 on 23 October 2026, on decision day.
Inputs: 5 statements · meeting summary 2026-42 · notices 2026-41, 2026-43 · CPI Sept 2026 · survey Oct 2026 · Enflasyon Raporu 2026-III. For information only; not investment advice.