Central Bank Reveals Interest Rate Decision

The Central Bank of the Republic of Turkey (CBRT) has announced its interest rate decision. The one-week repo rate has been reduced by 250 basis points to 47.50%.

The interest rate had been at 50% since March 2024. A margin of 150 basis points has been set for the interest rate corridor. The CBRT's statement reads: "The Monetary Policy Committee (the Committee) has decided to lower the policy rate, which is the one-week repo auction rate, from 50% to 47.5%. The Committee has also decided to adjust the operational framework to set the overnight borrowing and lending rates of the Central Bank relative to the one-week repo auction rate with a margin of +/- 150 basis points. The main trend of inflation has remained relatively stable in November. Leading indicators suggest a decrease in the main trend in December. Indicators for the last quarter show that domestic demand continues to slow, supporting the decline in inflation at sustainable levels. While core goods inflation continues to remain low, improvements in service inflation have become more apparent. Unprocessed food inflation appears to be moderate in December, following high levels in the previous two months. Although inflation expectations and pricing behaviors exhibit an improving trend, they continue to pose a risk in terms of the disinflation process. The determined stance in monetary policy is reducing the main trend of monthly inflation and strengthening the disinflation process through the balancing of domestic demand, the real appreciation of the Turkish lira, and the correction of inflation expectations. The increasing coordination of fiscal policy will also significantly contribute to this process. The tight monetary policy stance will be maintained until a clear and sustained decline in the main trend of monthly inflation is achieved and inflation expectations converge to the projected forecast range. In this direction, the level of the policy rate will be determined in a way to provide the necessary tightness required by the anticipated disinflation process, considering inflation realizations and expectations. The Committee will make its decisions with a focus on the inflation outlook, a cautious approach, and a meeting-based methodology. If a significant and permanent deterioration in inflation is anticipated, monetary policy tools will be used effectively. In the event of unexpected developments in the credit and deposit markets, the monetary transmission mechanism will be supported by additional macroprudential measures. Liquidity conditions are being closely monitored in light of potential developments. Sterilization instruments will continue to be used effectively. The Committee will set its policy decisions based on the lagged effects of monetary tightening, to provide the monetary and financial conditions necessary to reduce the main trend of inflation and achieve the inflation target of 5% in the medium term. Indicators related to inflation and its main trend will be closely monitored, and the Committee will decisively use all available tools to achieve its primary objective of price stability. The Committee will make its decisions within a predictable, data-driven, and transparent framework."