Turkey Central Bank Slashes Interest Rates Further

The Turkish central bank again cut its key interest rate sharply, citing a continued recovery in the economic activity and a broad decline in inflation expectations. The Monetary Policy Committee, led by TCMB Governor Murat Uysal, decided to reduce the policy rate, which is the one-week repo auction rate, to 12.00 percent from 14.00 percent. Economists had forecast a cut to 12.50 percent.

The bank expects inflation to materialize close to the lower bound of the October Inflation Report projections for the end of the year. The risks around the disinflation path for 2020 remain balanced, the TCMB added.

"Accordingly, considering all the factors affecting inflation outlook, the Committee decided to reduce the policy rate by 200 basis points," the bank said.

"At this point, the current monetary policy stance is considered to be consistent with the projected disinflation path."

In the previous session in late October, the bank had cut the rate by 250 basis points. In July and September, the rate was lowered by 425 and 325 basis points. "The Committee assesses that maintaining a sustained disinflation process is the key for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery," the bank said.

"Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance." The extent of the monetary tightness will be determined by considering the indicators of the underlying inflation trend to ensure the continuation of the disinflation process, the central bank added. Latest data showed that inflation accelerated to a three-month high of 10.56 percent in November and the economy returned to growth in the third quarter, expanding 0.9 percent year-on-year. The economy grew for the first time in four quarters.