Turkey’s central bank lowered its policy rate by another 75 basis points to 11.25 percent and reiterated its monetary policy stance is consistent with the projected path of slowing inflation but it still needs to maintain a “cautious” policy stance to ensure inflation declines.
It is the first rate cut by the Central Bank of the Republic of Turkey (CBRT) this year but continues the rapid pace of easing since July last year when the current governor, Murat Uysal, took over from Murat Cetinkay, who was fired for failing to follow President Recep Tayyip Erdogan’s instructions to lower rates.
Since July 2019 CBRT has cut its key rate by 12.75 percentage points but inflation has also come down sharply since topping 25 percent in October 2018 following a currency crises that sent import prices soaring.
In 2019 Turkey’s inflation rate decelerated from just over 20 percent in January to a low of 8.55 percent in October before rising in November and further in December to 11.84 percent, fueling expectations the central bank may trim the size of today’s rate cut to around 50 basis points.
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CBRT has forecast inflation of 12 percent by the end of 2019 and expects it to decline further to 8.5 percent by the end of 2020, with a decision in December to scrap an automatic tax increase on alcohol and tobacco products in the first half of this year helping curb inflation further.
“The course of inflation is considered to be broadly in line with the year-end inflation projection,” CBRT said, adding the exchange rate, domestic demand and producer prices have contributed to a mild trend in core inflation.
The central bank repeated its guidance that the monetary policy stance would be determined by considering the underlying trend in inflation to ensure it continues to decline.
In December the International Monetary Fund (IMF) forecast inflation would remain largely stable at around 12 percent in both 2020 and 2021, adding “the recent monetary policy easing has gone too far,” given the still-high inflation expectations and rapid credit growth in state-owned banks.
Turkey’s lira, which fell 33 percent in 2018 and another 11 percent in 2019, has bounced back in the last week and rose further today following the central bank’s decision.
The lira rose 0.5 percent to 5.85 per U.S. dollar today to be up 1.7 percent this year, helped by the recent rise in emerging market assets.
The Central Bank of the Republic of Turkey released the following press release from its monetary policy committee:
“Participating Committee Members