Turkey's Central Bank Cuts Interest Rate - Starts Easing Cycle to Reduce Inflation
Turkey's central bank cut its key interest rate by 250 basis points to 47.5%, kicking off an easing cycle aimed at putting an end to prolonged economic turmoil and a cost-of-living crisis.
The bank cut the one-week repo rate after an 18-month tightening effort that overturned years of questionable economic policies championed by President Tayyip Erdogan, who has reversed course to support the program.
The last rate cut in early 2023 had stood at 50% since March. Annual inflation eased to 47% last month, in what the central bank believes is a steady decline towards its 5% target in a few years.
The bank's committee said leading indicators reflected a downward trend in core inflation in December and demand continued to slow in the fourth quarter, with disinflation progressing.
A year and a half ago, Erdogan appointed a new central bank leadership with an independence not seen in years, and the institution aggressively tightened policy by 4,150 basis points to hit years of rising prices and a weakening currency.
Annual inflation had touched 85% in 2022 and 75% earlier this year, while the lira has depreciated by 90% in seven years, eroding the incomes and savings of the working and middle classes.
The central bank expects inflation to fall to 21% by the end of 2025. To determine the easing path, the bank is closely monitoring monthly inflation, which has been higher than expected in recent months, including 2.24% in November, mainly due to food prices.
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