Türkiye’s central bank has reduced interest rates for the third time since December, pointing to a decrease in inflationary pressures and a softening of domestic demand as reasons for its choice.
The bank’s monetary policy committee decreased its headline lending rate by 250 basis points on March 6, bringing its interest rate down to 42.5 percent from the previous rate of 45 percent, which was set on January 23. A reduction in the bank’s key lending rate was largely anticipated following better-than-expected inflation figures for February.
Türkiye’s consumer price index fell to 39 percent in February, marking its lowest level since mid-2023 and a decrease from January’s 42 percent. In a statement revealing the cut, the bank indicated that leading indicators suggested domestic demand remained disinflationary during the first quarter, continuing a trend from the last months of 2024. However, the bank also issued a note of caution, stating, “While inflation expectations and pricing behaviour tend to improve, they continue to pose risks to the disinflation process.”
Read more: Türkiye’s inflation eases to 39.05 percent in February, raising rate cut bets
Turkish central bank says rate cuts ‘not on autopilot’
Türkiye’s central bank governor Fatih Karahan remarked on Friday that the bank is “not on autopilot” following two consecutive interest rate cuts, asserting that decisions are data-driven. This comment came after the bank raised its year-end inflation forecast to 24 percent from 21 percent. “We can pause or change the size of policy rate moves,” Karahan stated during a news conference as the bank unveiled its quarterly inflation report in Istanbul. “Rate cuts are made in line with data.”
Karahan conveyed a hawkish message amid declining inflation and interest rates, as authorities anticipate an end to years of price and currency instability. “We make our policy decisions prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” he noted. The lira experienced a slight depreciation on Friday, trading at 35.9850 against the dollar, down from a closing price of 35.8660 the previous day. Bonds and stocks exhibited little change.
