Turkish Central Bank lowers policy rate 250 basis points, above estimates

The Turkish Central Bank on Thursday lowered its policy rate by 250 basis points, more than markets expected.

The benchmark one-week repo rate was lowered from 43% to 40.5%, while the markets had expected a 200 basis point rate cut.

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%.