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This article was originally written for Türkiye Today’s weekly economy newsletter, Turkish Economy in Brief, in its Dec. 22 issue. Please make sure you are subscribed to the newsletter by clicking here.
As Türkiye’s markets prepare to close out 2025, the year’s main economic theme has been the course of inflation and interest rates.
At the end of last year, annual inflation stood at 44.38%. This year, according to November data, it declined to 31.07%. The central bank’s December Market Participants Survey puts the year-end inflation forecast at 31.17%. These figures suggest a drop of approximately 13.2 percentage points in annual inflation over the year.
A similar decline occurred on the interest rate front. The central bank started 2025 with a policy rate of 47.50%. Following a 150-basis-point cut at the December meeting, the rate now stands at 38%. That means a total drop of 9.50 percentage points over the year.
Heading into 2026, the gap between the policy rate and inflation stands at 7 points, indicating that the Turkish lira continues to offer positive real returns.
On the domestic front, the BIST 100 index on Borsa Istanbul closed last week at 11,342 points, posting a modest gain. However, this level marks the second-highest weekly closing of all time. It’s also notable that the index held above the 11,250-support level, seen as a key threshold. The all-time high for the index is 11,605. Last week, it climbed as high as 11,470—getting close to that record.
Market activity remains relatively subdued and range-bound, largely due to uncertainty over the new minimum wage and the typical year-end slowdown. The upcoming minimum wage is being closely watched as a benchmark for other wages and prices of goods and services and thus is seen as a key indicator for future inflation expectations.
If price adjustments for administered and guided prices at the start of the year are kept within reasonable bounds, it may send a positive signal. For now, the market appears to be in a wait-and-see mode.
There have been notable developments globally. As U.S. labor data continues to come in weak—critical for the dollar index and U.S. interest rates—November inflation also came in below expectations. Non-farm payrolls in the U.S. rose by just 64,000 last month, while unemployment rose to 4.6%. Annual inflation was 2.7% in November, below the expected 3.1%.
These data are being interpreted as paving the way for rate cuts in the U.S. next year, which is supporting precious metals like gold and silver.
On the other hand, the Bank of Japan raised its policy rate to 0.75% for the first time in 30 years, signaling a shift to a tighter monetary regime for another reserve currency.
This marks a turning point for the long-standing trend of “borrowing cheap yen to take risks elsewhere,” and how this will play out in 2026 is something global markets will be closely watching.
These moves by reserve currencies will also be a key topic in 2026 for Türkiye’s markets, which rely on foreign capital.
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