ANKARA, Turkey — The Turkish central bank made a significant move to lower its key interest rate by 2.5 percentage points on Thursday, following data indications of a slowdown in inflation, which has heavily impacted household budgets. The central bank’s Monetary Policy Committee announced that it is reducing the benchmark one-week repo rate from 45% to 42.5%.
This marks the third consecutive reduction in interest rates by the bank, occurring after official reports revealed that annual inflation fell below 40% for the first time in almost two years. Despite this, the bank pledged to cautiously monitor inflation trends and adjust rates as necessary in future policy meetings.
“Although there is a tendency for inflation expectations and pricing behavior to improve, they still pose substantial challenges to the disinflation process,” stated the bank. “Effective use of monetary policy tools will be implemented if significant and persistent worsening in inflation is anticipated.”
Latest data from the Turkish Statistical Institute show that annual inflation in Turkey decreased to 39.05% in February, down from 42.12% the previous month. However, independent economists have voiced skepticism regarding these official figures and estimate the actual inflation rate to be considerably higher.
The surge in Turkey’s inflation has been attributed to factors such as increased energy prices, the lingering effects of the COVID-19 pandemic on the economy, and previous unconventional economic strategies by President Recep Tayyip Erdogan, which included lowering interest rates in the face of rising inflation.
President Erdogan has consistently asserted that high interest rates contribute to inflation, a stance contrary to conventional economic principles. In 2023, Erdogan appointed a new economic team, suggesting a move away from earlier unconventional policies. This team initiated a series of rate increases to tackle inflation. Following a period of maintaining the interest rate at 50%, the central bank has now started a gradual process of reducing rates.
