Central Bank cuts rate by 250 bps, sustaining easing cycle
ANKARA
The Central Bank has continued the easing cycle that it started in December by delivering another 250 basis points cut only days after data showed that annual inflation declined to its lowest level in February since July 2023.
As widely expected, the bank slashed the policy rate — the one-week repo auction rate — to 42.5 percent on March 6.
The tight monetary stance will be maintained until price stability is achieved via a sustained decline in inflation, the bank said in a statement after the Monetary Policy Committee meeting.
“Accordingly, the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path taking into account realized and expected inflation, and the underlying trend,” it added.
The committee will adjust the policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook, the bank said.
The central bank has scheduled eight monetary policy meetings for this year, down from 12 last year. The next rate-setting meeting will take place on April 17.
Monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen, the bank stressed in the statement.
The decisiveness regarding tight monetary stance is strengthening the disinflation process through moderation in domestic demand, real appreciation in Turkish Lira, and improvement in inflation expectations, it noted.
“Going forward, increased coordination of fiscal policy will also contribute significantly to this process,” it said.
While inflation expectations and pricing behavior tend to improve, they continue to pose risks to the disinflation process, the bank warned.
The annual inflation rate eased for the ninth consecutive month, reaching 39.05 percent in February, data from the Turkish Statistics Institute (TÜİK) showed on March 3.
On a monthly basis, the consumer price index (CPI) rose 2.27 percent, compared to 5.03 percent in January.
“Following the increase in January, the underlying trend of inflation decreased in February. Over this period, core goods inflation remained relatively low, while services inflation slowed down after the idiosyncratic increase in January,” the bank said.
Leading indicators suggest that domestic demand remains disinflationary in the first quarter, according to the bank.
Considering the lagged effects of monetary tightening, the committee will make its policy decisions so as to create the monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5 percent inflation target in the medium term, it said.
Most economists expect that the policy rate will come down to 30 percent by the end of 2025.
