Turkish Central Bank Cuts Rate Unexpectedly


Turkey’s central bank cut its key interest rates unexpectedly for the second straight time in its September meeting, despite elevated inflation, a weakening lira, and recession risks, and assessed that the current level of policy rates is adequate under the current outlook.

The Monetary Policy Committee, led by Governor Sahap Kavcioglu, lowered the policy rate, which is the one-week repo auction rate, from 13 percent to 12 percent. Economists had expected the rate to be left unchanged.

The central bank said it will “continue to use decisively all available instruments 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”.

Policymakers decided to cut the rate despite concerns over rising inflation.

The recent rise in inflation is driven by a combination of lagged and indirect effects of rising energy costs resulting from geopolitical events, as well as strong negative supply shocks caused by a rise in global energy, food, and agricultural commodity prices, the bank observed.

The committee expects disinflation to start on the back of increased price and financial stability, as well as a resolution of the on-going regional conflict.

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 bank said.

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