The Central Bank of Türkiye has lowered its policy rate, the one-week repo auction rate, from 43 percent to 40.5 percent.
This follows a 300-basis-point cut in July. Most economists had expected the bank to deliver a 200-basis-point reduction at its Monetary Policy Committee meeting on Sept. 11.
The committee also lowered the central bank overnight lending rate from 46 percent to 43.5 percent and the overnight borrowing rate from 41.5 percent to 39 percent.
The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels, the bank said in a statement accompanying the rate decision.
The macroeconomic framework outlined in the medium-term program will contribute to this process, it added.
“The committee will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets,” the bank said.
The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook, it noted.
Monetary policy stance will be tightened in case of a significant deviation in inflation outlook from the interim targets, according to the bank.
The underlying trend of inflation slowed down in August. While GDP growth was above projections in the second quarter, final domestic demand remained weak, the bank said in the statement.
“Recent data indicate that demand conditions are at disinflationary levels, it said, but warned that Inflation expectations, pricing behavior, and global developments continue to pose risks to the disinflation process.
After August inflation came in above forecasts, most analysts revised down their expectations for the size of the Central Bank’s rate cut at this week’s policy meeting.
JPMorgan said on Sept. 3 that it expected the Central Bank to lower its benchmark one-week repo rate by 200 basis points on Sept. 11— down from its earlier forecast of 300 basis points.
In an interview with Bloomberg earlier this week, Central Bank Governor Fatih Karahan said investors may have been too hasty in reducing their forecasts for interest-rate cuts.
From May 2023 until last March, the bank raised the rate from 8.5 percent to 50 percent and then kept it constant until its meeting last December, when it lowered the rate 250 basis points to 47.5 percent.
The bank cut the benchmark rate at its December, January, and March meetings from 50 percent to 42.5 percent. At the April meeting, in a surprise move, the bank raised the rate 350 basis points to 46 percent and left it unchanged at the June meeting.
