Türkiye cuts interest rate for second month

ISTANBUL

The Central Bank reduced its key policy reduce the policy rate - one-week repo auction rate - from 13 percent to 12 percent after delivering a 100 basis points cut last month.

Most analysts had expected the bank to keep the key interest rate unchanged at its Monetary Policy Committee (MPC) meeting on Sept. 22.

“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,” said the bank in a statement released after the MPC meeting.

Increase in inflation is driven by the lagged and indirect effects of rising energy costs resulting from geopolitical developments, effects of pricing formations that are not supported by economic fundamentals, strong negative supply shocks, according to the statement.

Consumer prices increased by 1.46 percent in August from July, bringing the annual inflation rate from 79.6 percent to 80.2 percent.

In the latest Medium-Term Program, the government forecasts that annual inflation will ease from 65 percent at the end of 2022 to 24.9 percent next year and further down to 9.9 percent in 2025.

Additionally, leading indicators for the third quarter continue pointing to loss of momentum in economic activity due to the decreasing foreign demand, the statement added.

“Accordingly, the committee decided to reduce the policy rate by 100 basis points and assessed that the updated level of policy rate is adequate under the current outlook. 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 bank also noted that 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.

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

The committee will continue to take its decisions in a transparent, predictable and data-driven framework, the statement added.

The MPC will hold three more rate-setting meetings this year in October, November and December.