Turkish Central Bank Slashes Policy Rate to 40.5 Percent

(MENAFN) The Turkish Central Bank delivered a sharper-than-anticipated policy rate cut on Thursday, slashing its benchmark one-week repo rate by 250 basis points to 40.5%, exceeding market forecasts of a 200-point reduction.

The policy move, announced amid signs of easing inflation and weak domestic demand, reflects the central bank’s continued shift toward monetary easing following an aggressive tightening cycle that began in May 2023.

"The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels. The macroeconomic framework outlined in the Medium-Term Program will contribute to this process," the central bank stated.

In its policy statement, the central bank pointed to signs of easing inflation, highlighting a slowdown in the underlying inflation trend in August. While economic growth in the second quarter surpassed forecasts, domestic demand remained subdued.

It also noted that current data reflects demand conditions consistent with disinflation, though elevated food prices and persistent inflation in services continue to exert upward pressure.

The bank cautioned that inflation expectations, pricing behavior, and external developments still present significant risks to the disinflation trajectory.

Türkiye’s annual inflation rate eased for the 15th straight month in August, falling to 32.95%, its lowest level since November 2021, though still above analyst expectations.

Since May 2023, the central bank had raised rates from 8.5% to 50%, holding steady until December, when it reversed course with a 250-point cut to 47.5%. Additional cuts followed in January and March, bringing the rate to 42.5%. In April, in a surprise move, the bank raised rates by 350 basis points to 46%, holding firm in June before reducing the rate by 300 basis points to 43% at its previous meeting.

Thursday’s decision reinforces the bank’s pivot back to monetary loosening, as it attempts to balance disinflation goals with signs of economic fragility.

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