Turkey: Central Bank decreases rates in December
Central Bank starts easing financing conditions: At its meeting on 26 December, the Central Bank of the Republic of Turkey (CBRT) decided to reduce the 1-week repo rate from 50.00% to 47.50%, initiating an easing cycle. Moreover, it adjusted the monetary policy operational framework by setting the Central Bank overnight borrowing and lending rates 150 basis points below and above the one-week repo auction rate, respectively. The cut was slightly larger than expected and followed eight consecutive holds.
Cooling domestic demand and inflation facilitate cut: The CBRT stated that the underlying trend of inflation remained essentially flat in November and added that domestic demand continued to slow down throughout Q4, helping to tame inflation. Nonetheless, the Bank noted that inflation expectations and pricing behavior continue to threaten the disinflation process.
Central Bank to continue cutting ahead: The Central Bank pivoted to data-dependent forward guidance with a statement that it will make its decisions “prudently on a meeting-by-meeting basis with a focus on the inflation outlook”. Moreover, it reiterated that it will maintain a tight monetary stance until there is a significant and sustained decline in inflation. Our panelists expect the Bank to gradually soften its stance throughout 2025, with a cumulative reduction of around 1750 basis points. The next meeting is scheduled for 23 January.
Panelist insight: ING’s Muhammet Mercan said:
“While implying a continuation of interest rate cuts in the period ahead, the addition to forward guidance shows that the cuts will depend on the data, but not be aggressive and uninterrupted.”