On Thursday, Turkey’s Central Bank, officially known as the Central Bank of the Republic of Türkiye (CBRT), executed a policy rate decrease of 100 basis points, setting the benchmark interest rate at 37%. This adjustment fell short of market expectations, which had anticipated a more substantial 150 basis point cut.
In its accompanying monetary policy statement, the CBRT reaffirmed its forward guidance, emphasizing that it will continue to evaluate the magnitude of interest rate modifications meeting by meeting. The primary criterion guiding these assessments is the latest inflation outlook, which remains a key concern for the bank.
The statement pointed out that preliminary economic indicators suggest a likelihood of firmer consumer inflation in January, with increases chiefly fueled by rising food prices. This trend signals heightened inflationary pressures that warrant close monitoring.
The Monetary Policy Committee (MPC) acknowledged that demand-side factors continue to aid the disinflation process but noted a moderation in their effectiveness. The committee also highlighted that risks to reducing inflation persist, particularly those related to inflation expectations among businesses and consumers, as well as pricing behavior. These factors contribute to the CBRT’s prudent and cautious stance on adjusting monetary policy parameters.
Choosing a smaller reduction than anticipated indicates the central bank’s hawkish orientation in response to projections of higher inflation in January. This approach aims to curb potential negative shifts in inflation expectations once the official data for January are released.
The CBRT has scheduled its next monetary policy review for March 12. At that time, any further changes to the policy rate will depend heavily on the inflation figures available then. The institution signaled that while it remains open to increasing the pace of rate cuts if disinflationary trends strengthen, the overall approach will remain flexible and data-dependent.