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Turkish Central Bank Slashes Policy Rate to 39.5 Percent
(MENAFN) The Turkish Central Bank announced on Thursday a 100 basis point reduction in its benchmark policy rate, aligning with market expectations. The one-week repo rate was trimmed from 40.5% to 39.5%.
Despite the rate cut, the bank noted a worsening inflation trend in September. "The risks posed by recent price developments, particularly in food, to the disinflation process through inflation expectations and pricing behavior have become more pronounced," the Central Bank stated.
While recent data suggest demand conditions are easing inflation pressures, the bank highlighted a deceleration in the disinflation momentum. It reaffirmed its commitment to a restrictive monetary stance: "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 bank also emphasized its strategy to ensure necessary monetary tightness in line with the projected disinflation path and interim targets, adjusting policy rates based on realized and expected inflation as well as the underlying trend. "The (Monetary Policy) Committee will make its policy decisions so as to create the monetary and financial conditions necessary to reach the 5% inflation target in the medium term," it added.
Türkiye’s annual inflation rate rose to 33.29% in September from 32.95% in August, exceeding market forecasts.
Since May 2023, the Central Bank increased rates aggressively from 8.5% to a peak of 50% in March, before initiating a series of cuts. Following a steady hold, the bank lowered rates by 250 basis points in December to 47.5%, then gradually reduced the rate to 42.5% through early 2024.
In April, the bank surprised markets with a 350 basis point hike to 46%, holding steady in June. However, it reversed course again with a 300 basis point cut in July to 43%, followed by a 250 basis point cut to 40.5% in August, surpassing market expectations before Thursday’s latest adjustment.
The Central Bank’s cautious approach reflects persistent inflation challenges amid ongoing economic uncertainty in Türkiye.
Despite the rate cut, the bank noted a worsening inflation trend in September. "The risks posed by recent price developments, particularly in food, to the disinflation process through inflation expectations and pricing behavior have become more pronounced," the Central Bank stated.
While recent data suggest demand conditions are easing inflation pressures, the bank highlighted a deceleration in the disinflation momentum. It reaffirmed its commitment to a restrictive monetary stance: "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 bank also emphasized its strategy to ensure necessary monetary tightness in line with the projected disinflation path and interim targets, adjusting policy rates based on realized and expected inflation as well as the underlying trend. "The (Monetary Policy) Committee will make its policy decisions so as to create the monetary and financial conditions necessary to reach the 5% inflation target in the medium term," it added.
Türkiye’s annual inflation rate rose to 33.29% in September from 32.95% in August, exceeding market forecasts.
Since May 2023, the Central Bank increased rates aggressively from 8.5% to a peak of 50% in March, before initiating a series of cuts. Following a steady hold, the bank lowered rates by 250 basis points in December to 47.5%, then gradually reduced the rate to 42.5% through early 2024.
In April, the bank surprised markets with a 350 basis point hike to 46%, holding steady in June. However, it reversed course again with a 300 basis point cut in July to 43%, followed by a 250 basis point cut to 40.5% in August, surpassing market expectations before Thursday’s latest adjustment.
The Central Bank’s cautious approach reflects persistent inflation challenges amid ongoing economic uncertainty in Türkiye.
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