Turkish central bank tightens credit access

• Regulations announced on May 22
• Move intended to ‘support stability’
• Istanbul stock market reacts

Turkey’s central bank has moved to further tighten credit, restricting lending growth amid speculation domestic political tension could prompt the bank to raise its key policy rate as inflation rises.

Under the new regulations announced by the bank at midnight on May 22, and which came into effect immediately, limits on the issuing of new loans in lira by banks over an eight-week period were cut by 1 percentage point across most categories.

The growth limit for consumer and vehicle credit was cut from 4 to 3 percent, and for larger businesses to 2 percent, down from the previous rate of 3 percent.

The restriction on growth for consumer overdraft credit was tightened from 2 to 1 percent.

The credit squeeze was less marked for the small and medium sized enterprise segment however, with credit growth limited to 4.5 percent, down from the previous level of 5 percent. This more moderate tightening is in line with government policy to cushion smaller businesses from the worst of the austerity measures that have been enacted and to support growth in the segment.

The bank said the new restrictions were intended to “support the tight monetary stance and strengthen macroeconomic stability”.

That stability was shaken on May 21, when an Ankara court annulled the results of the vote at the 2023 general congress of the opposition Republican People’s Party that saw long-time leader Kemal Kiliçdaroğlu replaced by Özgür Özel.

The court ruled that there was evidence of fraud and vote buying at the ballot, ordering Kiliçdaroğlu be reinstated and all officials elected or appointed under Özel be removed from office.

News of the court decision, which provoked widespread condemnation, resulted in a 6 percent fall on the Istanbul stock exchange in late trading that day, though by May 25 much of those losses had been recovered, in part on news that there could be a resolution of the conflict in the Gulf.

Previous ceilings on lending growth have not been successful, with data from market watchdog the Banking Regulation and Supervision Agency showing that lending gained momentum last year, with lira-denominated loans up by 44 percent in 2025.

Economist Mustafa Sönmez does not believe tightening the credit taps will slow inflation.

“The targeting of demand has not worked, and one measure that could – increasing interest rates – brings with it other problems,” he said.

• Turkish markets rocked as court removes opposition leader
• Turkey backs agriculture with $5bn package
• Turkish food inflation rises as farmland dwindles

With consumer inflation running at 32 percent as of the end of April, there has been speculation that the central bank could raise its key lending rate from 37 percent by as much as 300 basis points, both to keep hot money in the economy and further rein in demand.

With the uncertainty over the political situation, the Iran war and the direction of economic policy, Sönmez says many businesses are looking to increase prices to give themselves protection against potential instability.

“This attitude is widely present, and represents another factor contributing to inflation, which increasing rates or curbing available loans cannot solve.”