The Central Bank of the Republic of Turkey (CBRT) has reduced its policy interest rate by 250 basis points, lowering it from 47.5% to 45%. This marks the second consecutive rate cut, with a total reduction of 500 basis points over the last two months.
The decision was widely anticipated by markets. In a survey conducted by AA Finance, all 17 participating economists predicted a 250 basis point cut, bringing the rate to 45%. Similarly, a BloombergHT survey of 25 institutions forecast the same reduction.
The CBRT’s decision was in line with these expectations.
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First interest rate cut in 22 months occurred in December 2024
In December 2024, the Central Bank reduced the policy interest rate from 50% to 47.5%, marking the first cut in nearly two years. This followed six months of maintaining a steady rate. Turkey’s Central Bank had increased the policy rate to 53% in March 2024 in response to high-double-digit inflation.
While previous Monetary Policy Committee statements indicated no immediate rate cuts, market expectations shifted after a 30% increase in the minimum wage was announced earlier in the month.
Inflation’s stabilizing trend key to policy shift
In its latest Policy Committee statement, Turkey’s Central Bank emphasized its commitment to a tight monetary policy stance “until a clear and permanent decline in the main trend of monthly inflation is achieved.” However, it noted that a relatively flat inflation trend in recent months provided room for the rate cut.
The statement read:
“Inflation’s main trend remained relatively stable in November. Preliminary data for December indicates a decline in this trend. Indicators for the fourth quarter show domestic that demand continues to slow, supporting the reduction in inflation. While core goods inflation remains low, improvement in services inflation is becoming more pronounced. Following two months of high levels, unprocessed food inflation showed a moderate trend in December. Although inflation expectations and pricing behavior are improving, they remain a risk factor for the disinflation process.”
The Central Bank’s latest interest rate cut reflects its balance between managing inflation risks and supporting economic activity.
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