ANKARA, Turkey — On Thursday, Turkey’s central bank announced a reduction in its main interest rate by 2.5 percentage points, bringing it down to 45%. This marks the second consecutive month of rate cuts, coinciding with signs that inflation in the country is beginning to subside.

The Monetary Policy Committee made the decision to lower the one-week repo rate from 47.5% to 45%. This move follows a similar decrease last month, where the bank also opted for a 2.5 percentage point cut.

Despite these significant reductions, the central bank emphasized its determination to manage the high inflation rates that have burdened many Turkish households and made essential goods harder to afford. In a statement, the bank noted, “Although there have been improvements in inflation expectations and pricing behaviors, these continue to present risks to the process of disinflation.” The committee plans to evaluate and make future decisions carefully, based on the evolving inflation landscape.

As of December 2024, the annual inflation rate in Turkey has decreased to 44.38%, down from 47.09% in November. However, independent economists maintain that the actual inflation rates are likely much higher than those reported.

Rising inflation in recent years has been fueled by the depreciation of the Turkish lira and President Recep Tayyip Erdogan’s unorthodox economic strategy, which involved lowering interest rates even in an environment of high inflation. Erdogan has long held the belief that elevated interest rates contribute to inflation — a viewpoint that contradicts mainstream economic principles.

In 2023, a new economic team was appointed by Erdogan, which signaled a shift away from prior unconventional policies and the beginning of a series of interest rate hikes. Prior to the December cut, the central bank had kept the interest rate steady at 50% for several months.