The Central Bank of the Republic of Türkiye (CBRT) on Thursday slashed its benchmark policy rate by 50 basis points after keeping it unchanged for two consecutive months.
The central bank lowered its one-week repo rate to 8.5% from 9%.
The decision was made at the year's second Monetary Policy Committee (MPC) meeting.
"The committee assessed that the current monetary policy stance after the measured reduction is adequate to support the necessary recovery in the aftermath of the earthquake by maintaining price stability and financial stability," the bank said in a statement, referring to two powerful earthquakes that struck 11 provinces in southern Türkiye on Feb. 6, causing extensive damage and killing and injuring tens of thousands.
Over the last year, the bank gradually lowered the interest rate from 14% to 9% and then at its last two monetary policy meetings kept the rate steady.
The median forecast by economists surveyed by Anadolu Agency (AA) was a decrease in the one-week repo rate of 100 basis points, for example, a total percentage point.
While 10 economists forecast, the bank will cut rates by 100 basis points, one expected a 150-basis-point decrease, and six projected no change.
The bank statement noted that while economic activity data exceeded expectations, concerns about a recession in developed countries persisted due to the impact of geopolitical risks and interest rate hikes. Although supply constraints in some sectors, particularly basic food, have decreased due to Türkiye’s strategic solution tools, the impact of high global inflation on inflation expectations and international financial markets is being closely monitored, it said.
Pointing out that the efforts to find solutions with new supportive applications and tools developed by the central banks for the increasing uncertainties in the financial markets continue, the committee said, "Financial markets reflect the expectations that the central banks, which raise interest rates against recession risks, will soon end their interest rate hike cycles."
It stated that while the earthquake will have a near-term impact on the economy, it is not expected to have a lasting effect. The statement highlighted that prior to the disaster, leading indicators pointed to a lively domestic demand, which was expected to result in increased growth in the first quarter of 2023. The earthquake's effects on production, consumption, employment, and expectations were comprehensively evaluated.
It also noted that sustainable components in the growth composition are increasing, and tourism continues to make a strong contribution to the current account balance, exceeding expectations. However, risks to the current account balance remain due to high energy prices, weak economic activity in major export markets, and domestic consumption demand. Officials emphasized that it is important for price stability to maintain a sustainable balance of money, closely monitoring the growth rate of loans and the use of financing resources in line with economic activity.
As stated in the Monetary Policy and Liraization of 2023, the committee has implemented tools to support the effectiveness of the monetary transmission mechanism and will continue to use them with determination. The entire policy toolkit, especially funding channels, will be aligned with liraization targets to create suitable financial conditions for sustainable growth.
The statement emphasized that the level and trend of inflation have improved with the implementation of integrated policies, and the effects of supply-demand imbalances caused by the earthquake on inflation are being closely monitored.
According to the latest data from the Turkish Statistical Institute (TurkStat), Türkiye's annual consumer inflation fell to 57.68% in January, an 11-month low.
The MPC emphasized that financial support is crucial for maintaining acceleration in industrial production and increasing employment trends.