Turkey’s central bank has cut its key interest rate by 250 basis points to 47.5%, marking an easing cycle after 18 months of tightening efforts aimed at combating high inflation rates and economic turmoil. The move is a significant shift for the bank, which had maintained a tight monetary policy since March.
The decision follows annual inflation rates that dipped to 47% last month, with the central bank believing it has reversed its previous unorthodox policies and now focuses on returning to a 5% target. The bank’s policy committee will continue to monitor inflation closely, adjusting policy “prudently” based on new data.
The rate cut is seen as a response to growing pressure from President Recep Tayyip Erdoğan, who recently announced a less-than-requested 30% rise in the minimum wage for next year. Despite this move, Erdoğan has maintained his support for tighter monetary policy in the past.
Turkey’s central bank had previously imposed a tightening cycle, cutting interest rates by 4,150 basis points over an 18-month period to tackle soaring prices and a crashing currency. However, under new leadership with increased independence, the bank is now shifting its focus towards inflation control.
The move is expected to have a limited impact on prices in the short term, given the upcoming minimum wage increase, but the central bank remains optimistic about inflation falling to 21% by end-2025. As the government maintains fiscal discipline and continues to fight inflation, market expectations are for the interest rate to reach around 28.5% by the end of 2025.
Source: https://www.duvarenglish.com/turkish-central-bank-cuts-rates-after-18-months-of-tightening-efforts-news-65450