Turkey’s central bank lowered its policy rate for the second time this year but said it would maintain a cautious monetary stance to ensure inflation continues to decline, with the outlook for inflation determining the extent of future monetary tightness.
The Central Bank of Turkey (CBRT) cut its benchmark one-week repo rate by a larger-than-expected 325 basis points to 16.50 percent and has now lowered it by a total of 750 points this year following a cut in July after Governor Murat Uysal took over from Murat Cetinkaya who was fired for failing to follow President Recep Tayyip Erdogan’s instructions to lower rates.
CBRT said the repo rate was now consistent with its projected disinflation path, which is critical for achieving lower sovereign risk, lower long-term rates and a stronger economic recovery.
Turkey’s inflation rate declined to 15.01 percent in August from 16.65 percent in July and domestic demand and the current tight monetary policy continue to support a further decline, with the central bank expecting inflation to fall faster than it projected in July.
Turkey’s economy is slowly improving but remains in contraction, with gross domestic product in the second quarter shrinking by an annual 1.5 percent following a fall of 2.4 percent in the first quarter and 2.8 percent in the fourth quarter of last year.
“Recently released data indicate that moderate recovery in economic activity continues,” the central bank said, adding net exports were contributing to growth while investment remains weak and private consumption has gradually improved.
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