Turkey’s central bank has lowered its main interest rate by 2.5 percentage points to 40.5 percent, exceeding expectations. This move comes as inflation continues to ease, with annual inflation rates decreasing to 32.95 percent in August from 33.52 percent in July. The monetary policy committee decided to reduce the one-week repo auction rate by 250 basis points, citing weak final domestic demand and disinflationary demand conditions.
The central bank had previously raised its key interest rate to 46 percent in April, following protests over the jailing of Istanbul’s opposition mayor, and later lowered it by three percentage points in July. The recent cut in interest rates was anticipated due to the easing of inflation, with the bank aiming to maintain a tight monetary policy stance until price stability is achieved.
While growth exceeded projections in the second quarter, the bank noted that food and service prices are keeping upward pressure on inflation. Additionally, inflation expectations, pricing behavior, and global developments continue to pose risks to the disinflation process. The central bank’s decision to cut interest rates is seen as a move to support economic growth while keeping inflation in check.
Turkey’s economy has been facing challenges, including high inflation rates, and the central bank’s decision is aimed at achieving price stability. The bank’s statement highlighted the need for a tight monetary policy stance to mitigate the risks associated with inflation. As the country’s economy continues to evolve, the central bank’s decision will be closely watched by investors and economists.
The cut in interest rates is expected to have a positive impact on Turkey’s economy, with potential benefits for businesses and consumers. However, the bank’s cautious approach, given the ongoing risks to the disinflation process, is a testament to the complexity of the economic situation. With the global economic landscape constantly changing, Turkey’s central bank will need to continue to monitor and adjust its monetary policy to achieve its goals.
