Turkish central bank cuts rates for third month

ANKARA

Türkiye’s Central Bank has delivered another rate cut - for the third month in a row - slashing its policy rate - the one-week repo auction rate - from 12 percent to 10.5 percent.

This was larger than the 100-basis points reduction most analysts had expected.

“The committee evaluated taking a similar step in the following meeting and ending the rate cut cycle,” the bank said in a statement released after the Monetary Policy Committee (MPC) meeting held on Oct. 20.

President Recep Tayyip Erdoğan earlier this month said that interest rates should come down to single digits by the end of the year.

There will be two more MPC meetings in 2022, scheduled for Nov. 24 and Dec. 22.

It is critically important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment in a period of increasing uncertainties regarding global growth as well as further escalation of geopolitical risks, the statement added.

“Accordingly, the committee has decided to reduce the policy rate by 150 basis points.”

To create an institutional basis for sustainable price stability, the comprehensive review of the policy framework continues with the aim of encouraging permanent and strengthened liraization in all policy tools of the Central Bank, the statement said.

The bank reiterated that it will continue to use all available instruments decisively within the framework of liraization strategy until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved.

The credit, collateral and liquidity policy actions, of which the review process is finalized, will continue to be implemented to strengthen the effectiveness of the monetary policy transmission mechanism, it said.

The committee expects the disinflation process to start on the back of measures taken and decisively implemented for strengthening sustainable price and financial stability along with the resolution of the ongoing regional conflict, according to the statement.

High course of energy prices and the likelihood of a recession in main trade partners keep the risks on current account balance alive, the bank warned.

Leading indicators for the second half of the year continue pointing to a slowdown in growth due to the weakening foreign demand, the statement said, adding that pressures on the manufacturing industry due to foreign demand and their currently limited impact on domestic demand and supply capacity are being monitored closely.