Türkiye’s central bank is expected to cut its key policy rate again this week, after President Recep Tayyip Erdoğan called for more easing each month and said rates should be single digits by year-end.
The Central Bank of the Republic of Türkiye (CBRT) surprised markets as it cut its benchmark one-week repo rate by 200 basis points to 12% in the last two months.
The bank had embarked on a rate-cutting cycle more than a year ago as it lowered its one-week repo rate by 500 basis points to 14%, where it had left it steady in the first seven months of this year.
Monetary easing is part of the government’s new economic program that seeks to boost growth, investments, employment and exports by lowering borrowing costs, especially for exporters and small and medium-sized companies.
Erdoğan earlier this month repeated his call on the central bank to further lower its key policy rate and said the bank would continue cuts every month “as long as I am in power.”
A week earlier, he said he had advised the monetary authority to cut the one-week repo rate at its upcoming meetings and that he expects interest rates to come down to single digits by year-end.
Thirteen out of 20 economists that participated in a Reuters poll predicted the bank would lower its policy rate to 11% at its meeting on Thursday. Six predicted it would hold steady at 12%, while one forecasted a cut to 11.50%.
Erdoğan is known for opposing higher borrowing costs, which he says only makes “the rich richer and the poor poorer.” He calls high interest rates his “biggest enemy” and the “mother of all evil.”
He believes lower interest rates would lead to lower inflation. Higher rates make it more expensive for households and businesses to borrow money.
The government says inflation will fall with its economic program prioritizing low borrowing costs to boost exports, production and investments, aiming to lower the increase in consumer prices by flipping Türkiye’s chronic current account deficits to a surplus.
Türkiye’s annual inflation topped 83.45% in September, a fresh 24-year high, driven mainly by soaring food and energy prices, which rocketed following Russia’s invasion of Ukraine.
