Inflation Decline in Turkey Signals Potential Interest Rate Cut to 45.0% - Economist

Investing.com -- In Turkey, inflation decreased more than expected last month, falling from 47.1% in November to 44.4%. The decline in inflation was greater than both our and LSEG's forecasts of 46.0% and 45.2%, respectively. On a monthly basis, consumer prices rose by 1.0%, marking the lowest increase since May 2023 and even before that, May 2021.

The drop in inflation was observed across various sectors. Food inflation, which had shown strong increases in the previous two months, slowed down in December. The most notable aspect for the Central Bank was the continued decline in core inflation, which excludes volatile items like food and energy. Monthly core inflation reached a multi-year low of 1.1%.

The Central Bank of the Republic of Turkey (CBRT) initiated a loosening cycle last week with a 250 basis point interest rate cut, reducing the rate to 47.5%. The recent minimum wage increase, which is relatively small compared to previous hikes in Turkey, is expected to further lower core inflation. Additionally, the inflation data suggests that “another interest rate cut of 250 basis points to drop the rate to 45.0% may occur in the next central bank meeting on January 23,” according to Capital Economics economists.

"The weaker-than-expected outcome in today’s data release will likely give policymakers confidence to implement another cut of 250 basis points (bringing the rate down to 45.0%) at their next meeting this month," the economists added.