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Turkey's central bank implemented its first interest rate cut in almost two years on Thursday, lowering the key rate from 50% to 47.5% amidst ongoing double-digit inflation. The monetary policy committee cited improved "inflation expectations and pricing behavior" as reasons for the reduction, which is the first since February 2023.
The central bank began to raise interest rates last year to battle soaring prices, after President Recep Tayyip Erdogan dropped his opposition to orthodox monetary policy. It has kept the main rate stable at 50 percent since March. Thursday's decision signals the start of an easing cycle after eight months of steady policy.
The bank said the decisiveness over its tight monetary stance "is bringing down the underlying trend of monthly inflation and strengthening the disinflation process".
In November, Turkey's annual inflation rate slowed for the sixth month in a row, at 47.1 percent.
The central bank now expects inflation to reach 44 percent at the end of 2024, up from a previous estimate in August of 38 percent. The bank said the level of the policy rate would be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realised and expected inflation.
This week, the central bank announced that it would hold fewer policy meetings next year.
"The Committee will make its decisions prudently on a meeting-by-meeting basis with a focus on the inflation outlook," the bank said, adding it would "decisively use all the tools at its disposal in line with its main objective of price stability". The bank "will make its decisions in a predictable, data-driven and transparent framework", it added. The rate slash comes amid a moderate increase in Turkey's minimum wage after several rounds of negotiations. The net monthly minimum wage has been raised by 30 percent to 22,104 lira ($600), beginning from January 1 -- far below the demands of the workers union. The union had demanded a 70 percent increase.
