Turkey's central bank announced a significant reduction in its key interest rate, lowering it by 2.5 percentage points to 45% on Thursday. This marks the second consecutive rate cut in as many months, with the previous cut also being 2.5 percentage points in December.
The Monetary Policy Committee made the decision to reduce the benchmark one-week repo rate from 47.5% to 45%, citing official figures that indicate a slight easing in inflation. Despite this rate cut, the central bank emphasized its commitment to managing the high inflation that has been impacting households across Turkey, making it challenging for many to afford basic necessities.
In a statement, the bank acknowledged that while there are signs of improvement in inflation expectations and pricing behavior, there are still risks that could hinder the disinflation process. The Committee stated that it will continue to assess the inflation outlook and make decisions cautiously on a meeting-by-meeting basis.
Annual inflation in Turkey decreased to 44.38% in December 2024 from 47.09% in the previous month, although experts believe the actual rate may be even higher. The surge in inflation in recent years has been attributed to the devaluation of the Turkish lira and the implementation of unconventional economic policies by President Recep Tayyip Erdogan, who has been advocating for lower interest rates despite the high inflation.
In 2023, Erdogan appointed a new economic team that reversed the unconventional policies and initiated a series of rate hikes to address the inflationary pressures. Prior to the rate cut in December, the central bank had maintained the interest rate at 50% for an extended period.
