Central Bank slashes key rate to 12 percent

Central Bank slashes key rate to 12 percent

Central Bank slashes key rate to 12 percent

Turkey’s Central Bank has cut its main policy rate (one-week repo rate) by 200 basis points – larger than market expectations – from 14 percent to 12 percent.

According to a poll conducted by Anadolu Agency economists had predicted a 150 basis point cut at the bank’s Monetary Policy Committee (MOC) meeting on Dec. 12.

Survey forecasts interest rates drop in Turkey
Survey forecasts interest rates drop in Turkey

Inflation outlook continued to improve while inflation expectations displayed a wide-spread decline, the bank said in a statement released after this year’s last MPC meeting.

The annual inflation rate inched up to 10.56 percent in November from 8.55 percent in the previous month. A recent Central Bank survey showed that inflation expectations for 2019 eased to 11.62 percent from 12.18 percent.

“Thanks to the stable course of the Turkish lira as well as the developments in domestic demand conditions and producer prices, core inflation indicators have displayed a mild trend,” the statement added.

The Central Bank also noted that underlying trend indicators, supply side factors, and import prices lead to an improvement in the inflation outlook.

“In light of these developments, recent forecasts suggest that inflation is likely to materialize close to the lower bound of the October Inflation Report projections for the end of the year, with risks around the disinflation path for 2020 being balanced.”

In the inflation report, released in October, the bank lowered its end-year inflation forecast to 12 percent from a previous 13.9 percent.

“At this point, the current monetary policy stance is considered to be consistent with the projected disinflation path,” the bank said in Dec. 12's statement.

The bank also suggested that recent data point to the continuation of the recovery in economic activity.

As the contribution of net exports to economic growth declines, economic recovery is expected to be sustained with the help of the ongoing disinflation process and improvement in financial conditions, it added.

“Sectoral diffusion of economic activity continues to improve. However, investment demand remains weak.”

According to the bank, the current account balance is expected to maintain a moderate course with the contribution of supportive policy measures.

The country’s current account balance posted a surplus of $1.55 billion in October, while the12-month rolling surplus amounted to $4.33 billion.

The Central Bank reiterated that it will continue to use all available instruments in pursuit of the price stability and financial stability objectives.