Central Bank Announces First Interest Rate Decision of 2025

The Central Bank of the Republic of Turkey (CBRT) reduced the policy rate by 250 basis points from 47,5 percent to 45 percent in its last meeting of the year. This decision had significant repercussions in both domestic and foreign markets. So, what will be the effects of this interest rate cut on the economy and what is expected in the coming period? Let's examine the answers to these questions together.

What is the Purpose of Interest Rate Cuts?

The main purpose of central banks lowering interest rates is to support economic growth and encourage investment. By lowering interest rates, credit costs decrease, which increases the willingness of consumers and investors to spend and invest. This stimulates economic activity and increases employment.

The Effects of Interest Rate Cuts on the Turkish Economy

  • Reduction in Credit Costs: With the interest rate cut, loan interest rates will also decrease, which will provide a significant advantage especially for those who are considering taking out a loan for large investments such as housing and automobiles.
  • Increase in Consumption Expenditures: Lower interest rates will reduce consumers' borrowing costs, thereby contributing to increased consumption spending.
  • Increase in Investments: Companies operating in the manufacturing sector in particular will be able to invest and increase their production capacity by using loans at lower costs.
  • Increasing Growth Expectations: When all these factors come together, the rate of economic growth is expected to increase.
  • Inflation Risks: However, another important effect of the interest rate cut is the pressure it puts on inflation. Lowering interest rates can increase demand and bring about the risk of inflation.

The Central Bank's Cautious Approach

The Central Bank, in its statement announcing its interest rate decision, stated that it will closely monitor the inflation outlook and will not hesitate to use policy tools when necessary. This shows that the bank is trying to both support growth and keep inflation under control.

Expectations for the Future

Following the interest rate cut, its effects on the economy will be closely monitored. Keeping inflation under control, ensuring sustainable growth and maintaining financial stability will be among the priorities of the Central Bank in the coming period.

 The Central Bank's interest rate cut decision is expected to have a stimulating effect on the economy. However, inflation risks should not be ignored in this process. It is of great importance for the Central Bank to follow a cautious and data-based policy in order to maintain economic stability.

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