UPDATE - Türkiye cuts policy rate 250 bps as expected

UPDATES WITH ADDITIONAL DETAILS

By Tuba Ongun

The Central Bank of the Republic of Türkiye on Thursday trimmed the policy rate by 250 basis points, matching market forecasts.

The benchmark one-week repo rate was lowered to 45% from 47.5%.

The bank said the tight monetary policy would remain in place until price stability is achieved through a sustained reduction in inflation.

"Accordingly, the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path taking into account realized and expected inflation, and the underlying trend," it said.

The bank stressed that it would make cautious decisions on a meeting-by-meeting basis, with a primary focus on the inflation outlook.

The bank highlighted that while the underlying trend of inflation eased in December, January is expected to see an uptick, driven by service-sector items with time-sensitive pricing and backward indexation.

Core goods inflation, however, remains relatively low, and domestic demand indicators for the final quarter of 2024 suggest disinflationary dynamics are at play, it noted, adding: "While inflation expectations and pricing behavior tend to improve, they continue to pose risks to the disinflation process."

Türkiye's annual inflation rate in December eased for the seventh consecutive month to 44.38%, the lowest reading since June 2023.

From May 2023 until last March, the bank raised the rate from 8.5% to 50% and then kept the rate constant until its December meeting, when it lowered the rate by 250 basis points to 47.5%.

"The decisiveness regarding the tight monetary stance is strengthening the disinflation process through moderation in domestic demand, real appreciation in the Turkish lira, and improvement in inflation expectations," the statement read.

To address potential risks, the bank emphasized its readiness to employ macroprudential measures to support the monetary transmission mechanism if unexpected developments in credit and deposit markets occurred.

Liquidity conditions will be closely monitored, and sterilization tools will be used effectively, with additional measures as needed, the statement underlined.