The Turkish central bank slashed its key policy rate by another 250 basis points to 42.5% on Thursday, in line with expectations, continuing the easing it launched in December as inflation slows down.
In December, the Central Bank of the Republic of Türkiye (CBRT) cut rates for the first time after an 18-month tightening effort to curb prices following a major shift in the monetary policy.
Annual inflation slowed to a lower-than-expected 39.05% in February, down from a peak above 75% last May, the official data showed earlier this week. Monthly inflation cooled to 2.27% last month, also less than expected, paving the way for further rate cuts.
Most economists and recent polls anticipated that the bank would reduce its one-week repo rate by 250 basis points. Thursday's cut marked the third consecutive time as inflation has fallen below 40% for the first time since mid-2023.
To tackle inflation, the central bank raised its policy rate by 4,150 basis points in mid-2023 and kept it at 50% for eight months before beginning to ease policy.
"Following the increase in January, the underlying trend of inflation decreased in February," the central bank said in a statement following its monetary policy meeting (MPC) on Thursday.
"Over this period, core goods inflation remained relatively low, while services inflation slowed down after the idiosyncratic increase in January," it added.
Suggesting that although domestic demand "was above projections in the fourth quarter," it remained at "disinflationary levels."
"Leading indicators suggest that domestic demand remains disinflationary in the first quarter," the bank further said, noting that the effects of monetary policy stance on credit and deposit markets, as well as on domestic demand, are closely monitored.
"While inflation expectations and pricing behavior tend to improve, they continue to pose risks to the disinflation process," it warned.
However, the CBRT pointed out that decisiveness regarding tight monetary stance "is strengthening the disinflation process" through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations.
Moreover, it repeated the pledge that the tight monetary stance "will be maintained until price stability is achieved via a sustained decline in inflation."
The bank stressed that it would make cautious decisions on a meeting-by-meeting basis, primarily focusing on the inflation outlook.
"Accordingly, the policy rate will be determined to ensure the tightness required by the projected disinflation path, taking into account realized and expected inflation and the underlying trend. The committee will adjust the policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook," it said.
"Monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen," it added.
The Turkish lira was litte changed at 36.44 per U.S. dollar at 2.52 p.m. local time (11.52 a.m. GMT), following the decision.
The bank also referred to the recent developments in credit growth, recalling that "additional measures were taken to preserve macro-financial stability and to support the tight monetary policy stance."
CBRT also said that liquidity conditions "will continue to be closely monitored and sterilization tools will continue to be used effectively."
The bank concluded by saying all monetary policy tools will be used "decisively," pledging for the committee to make its decisions in a predictable, data-driven framework.
