Turkish Lira Reaches New Record Low Against US Dollar Amid Central Bank Rate Cut

Lira Hits Historic Low

The Turkish lira has continued its downward trend, reaching a new record low against the US dollar in October 2025. The exchange rate climbed to approximately 41.9 per US dollar, marking a significant depreciation. This extends a pattern of gradual weakening that has been observed since July 2023, when President Recep Tayyip Erdogan appointed a more orthodox economic team.

The currency has weakened by about 18% year-to-date in October 2025. Over the past month, the lira depreciated by 1.51%, and over the last 12 months, it has fallen by 22.38% as of October 17, 2025. Historically, the lira has seen a dramatic decline, soaring over 450% against the dollar in the last five years.

Central Bank's Monetary Policy Shift

The latest depreciation comes despite, or perhaps in response to, recent monetary policy decisions by the Central Bank of the Republic of Turkey (CBRT). In September 2025, the CBRT surprised markets by cutting its benchmark interest rate by 250 basis points, bringing it down to 40.5%. This reduction was steeper than market expectations and marks an extension of an easing cycle that began after rates peaked at 50% in late 2024.

Prior to this, the central bank had initiated a strong monetary tightening process, raising the policy rate from 8.5% in June 2023 to 50% in March 2024, aiming to establish a disinflationary course and anchor inflation expectations. The CBRT has also maintained a strong presence in the foreign exchange market, intervening to retain tight control over the currency's depreciation. The government's policy, termed 'real appreciation,' aims to ensure that the lira's nominal depreciation remains slower than consumer inflation.

Persistent Inflationary Pressures

The lira's continued weakness is set against a backdrop of persistent inflationary pressures. Turkey's annual inflation rate accelerated for the first time in fifteen months, reaching 33.29% in September 2025. This surge was largely driven by higher food prices, exacerbated by agricultural frost and drought. Overall, Turkey's inflation stood at 33% in October 2025, making it one of the G20 outliers.

Analysts point to several factors contributing to the lira's long-term depreciation, including a perceived lack of central bank independence, where the president holds significant power over appointments. There is also a belief that a weaker lira can benefit the economy by making Turkish exports more competitive and boosting the tourism sector.

Future Outlook and Policy Adjustments

Looking ahead, the CBRT has outlined plans to terminate the foreign exchange-protected Turkish lira deposit scheme, known as KKM, during 2025. This move is part of ongoing efforts to simplify the macroprudential framework and enhance the effectiveness of monetary transmission. The central bank has also announced that its Monetary Policy Committee meetings will be held eight times in 2025, rather than monthly, as it continues to target a 5% inflation rate in the medium term.