Turkey's Central Bank Announces Significant Rate Cut

In a surprising move, the Central Bank of the Republic of Turkey (CBRT) has decided to reduce its key interest rates by 2.5 percentage points to 47.5%. This decision, made in December, marks the first rate cut since February 2023, signaling a potential shift in the country's economic strategy.

Understanding the Decision

The CBRT highlighted that the underlying trend of inflation remained essentially flat in November, with leading indicators suggesting a decline in December. The bank noted a slowdown in domestic demand and an improvement in services inflation, alongside a moderation in unprocessed food inflation. However, it also cautioned that inflation expectations and pricing behavior continue to pose risks to the disinflation process.

Impact of Tight Monetary Policy

The bank attributed the current economic stabilization to the tight monetary policy maintained over the past months and effective fiscal coordination. These measures have been instrumental in lowering inflation and steering the Turkish economy towards a more stable path.