Türkiye is closing out a year defined by critical policy adjustments, mainly marked by a monetary tightening campaign unlike any other in recent memory aimed at minimizing inflationary pressures without inflicting major damage to economic growth.
The result: inflation has trended downward while the central bank has kickstarted a long-anticipated easing cycle with its first interest rate cut in nearly two years.
The rise in prices weighed heavily on the economy in 2023, before President Recep Tayyip Erdoğan appointed an economy management that pivoted away from ultra-loose monetary policy. That shift saw the central bank rapidly hike interest rates from single digits to as high as 50% within less than a year.
But that plagued businesses and households, elevating costs for mortgages, auto loans, credit cards and other forms of borrowing.
Inflation began 2024 at nearly 65%, peaked at over 75% but dipped to 47% in November, the lowest since mid-2023, in what the central bank and officials believe is a sustained fall. Official data on Friday is likely to show it ended the year at 44%-45%, according to central bank and officials.
The Central Bank of the Republic of Türkiye (CBRT) maintained the benchmark one-week repo rate at 50% until last week, when it lowered the rate by 250 basis points to 47.5%, marking the start of an easing cycle after an 18-month tightening effort.
The monetary authority is expected to continue lowering borrowing costs throughout 2025 and has announced it had reduced the number of scheduled policy meetings next year to eight from 12 in 2024.
The bank's policy committee last week said it would set policy "prudently on a meeting-by-meeting basis with a focus on the inflation outlook," and respond to any expected "significant and persistent deterioration."
On Saturday, Erdoğan noted that in addition to monetary policy, other tools will also be used to bring down inflation and said there would be more interest rate cuts in 2025.
"Priority in our economy program is to lower inflation ... We will hopefully reduce inflation to the required level by using other tools at our disposal in addition to the monetary policy," said the president.
"We will definitely start lowering the interest rates. 2025 will be the landmark year for this."
The decision to start trimming the key policy rate signaled authorities’ cautious move to support economic growth as inflationary pressures eased.
The bank emphasized that it remained committed to maintaining price stability and would monitor inflation closely before making further adjustments.
It sees inflation easing to as low as 21% by the end of 2025.
The international community took note of the progress as global credit rating agencies upgraded Türkiye's rating significantly throughout 2024.
In July, Moody’s raised Türkiye's long-term foreign- and domestic-currency issuer and foreign-currency senior unsecured ratings to ‘B1’ from ‘B3’ with a positive outlook, citing effective monetary policies and improved economic stability.
In September, Fitch Ratings upgraded Türkiye’s long-term foreign currency issuer default rating to ‘BB-‘ from ‘B+’ with a stable outlook, reflecting improved external buffers, reduced contingent foreign exchange liabilities, the expectation of lower inflation and lower current account deficits.
The most notable upgrade came in November when S&P Global raised Türkiye’s long-term sovereign credit rating from ‘B+’ to ‘BB-.’
This reflected a growing confidence in Türkiye’s economic management and its commitment to addressing structural challenges.
In addition to rating upgrades, Türkiye saw a significant improvement in its international reserves which hit a record level of $159.4 billion as of Dec. 6.
Türkiye's five-year credit default swaps (CDS) dipped below 250 basis points on Dec. 6 for the first time since February 2020, leading to easier access to financing with decreased costs.
The performance of Türkiye's benchmark BIST 100 stock index also reflected renewed investor sentiment.
Throughout 2024, the index saw a robust recovery, rising nearly 34% by year-end, led by gains in the banking and industrial sectors.
Increased foreign investment flowed into Turkish equities as international investors responded positively to the central bank’s policies and the government’s commitment to structural reforms.
Despite positive developments, the country faced ongoing challenges. The unemployment rate rose to 8.8% in October, reflecting the economic adjustments and the impact of high interest rates on labor market.
The government continued to prioritize job creation as part of its broader economic agenda, focusing on fostering an environment conducive to business growth and attracting foreign direct investment.
Gross domestic product (GDP) growth slowed during the course of 2024. The economy grew by 5.5% year-over-year in the first quarter, 2.4% in the second quarter and 2.1% in the third quarter.
It contracted by 0.2% quarter-over-quarter in both the second and third quarters, reversing 1.2% growth in the first quarter.
On the fiscal front, the government took measures to safeguard households from the lingering effects of high prices.
It announced a 30% hike in the minimum wage for 2025, aiming to balance the needs of workers with the broader economic effort to keep inflation under control.
