Türkiye Cuts Interest Rate by 250 Basis Points, Exceeding Forecasts

The Central Bank of Türkiye reduced its benchmark interest rate by 250 basis points on Thursday, exceeding market expectations.

The one-week repo rate was cut from 43% to 40.5%, while analysts had anticipated a smaller reduction of 200 basis points, The Caspian Post reports, citing Turkish media.

The bank said the underlying trend of inflation slowed in August, and while economic growth was above projections in the second quarter, final domestic demand remained weak.

"Recent data indicate that demand conditions are at disinflationary levels. Food prices and service items with high inertia are exerting upward pressure on inflation," it noted.

The bank also said that inflation expectations, pricing behavior, and global developments continue to pose risks to the disinflation process.

"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 added.

Türkiye's annual inflation rate in August eased for the 15th consecutive month to 32.95%, its lowest reading since November 2021, but above market expectations.

From May 2023 until last March, the bank raised the rate from 8.5% to 50% and then kept it constant until its meeting last December, when it lowered the rate 250 basis points to 47.5%.

The bank cut the benchmark rate at its December, January, and March meetings from 50% to 42.5%. At the April meeting, in a surprise move, the bank raised the rate 350 basis points to 46%, and left it unchanged at the June meeting.

At its previous meeting, the bank lowered the rate by 300 basis points to 43%.