Turkish central bank lowers interest rate by 250 basis points

The Central Bank of the Republic of Türkiye (CBRT) has reduced its policy interest rate by 250 basis points, bringing it down to 45%. This follows a similar rate cut in December.

The decision announced following the Monetary Policy Committee meeting on Thursday aligned with market expectations, as annual inflation curbed to 44.38% in December 2024, according to the Turkish Statistical Institute (TurkStat).

Key insights from Turkish central bank’s announcement

The Monetary Policy Committee of CBRT reiterated that policy rates would be set in line with the projected disinflation path, considering realized and expected inflation as well as underlying trends, with decisions taken cautiously on a meeting-by-meeting basis.

Key insights from the CBRT statement are as follows:

• Inflation showed a downward trend in December but is projected to rise in January, primarily because of time-sensitive pricing in services and backward-looking adjustments.
• Inflation in core goods remains subdued, while domestic demand contributes positively to the disinflation process.
• Although inflation expectations and pricing behavior are showing signs of improvement, they still present challenges to the disinflation process.

• A tight monetary policy is helping to curb inflation by moderating domestic demand, supporting the Turkish lira’s value, and improving inflation expectations.
• Greater alignment between fiscal and monetary policies will enhance efforts to control inflation, with monetary tightening continuing until price stability is consistently achieved.

Turkish central bank’s decision in December

Between May 2023 and March, the CBRT had raised the interest rate from 8.5% to 50%.

On Dec. 22, the central bank announced a 250-basis-point reduction in the policy interest rate, lowering it to 47.5%, marking its first rate cut since Feb. 22, 2023. The decision surpassed market expectations of a 150-basis-point cut, as indicated in the CBRT’s market participants’ survey for December.

However, the policy rate remained just above the inflation rate, which declined for the seventh consecutive month to 44.38% in November, its lowest level since June 2023.