The Central Bank of Turkey cut its benchmark interest rate by just 100 basis points on Thursday, bringing it to 39.5%, after warning of an increase in the underlying trend of inflation during September. The decision taken by the Turkish institution, which is in line with analysts’ forecasts, marks a slowdown in interest rate reduction policies in the Eurasian country in the face of a slowdown in the disinflationary process.
According to Turkish media reports, including the Anatolia news agency, although the latest data suggest that demand conditions remain at disinflationary levels, they also reflect a slowdown in the price reduction process.
“The risks arising from recent price increases, especially in food, and their impact on inflation expectations and price behaviour have become more evident,” the Central Bank said in a statement. The bank added that it will maintain a restrictive monetary policy until price stability is achieved, thereby reinforcing the disinflation process through demand, the exchange rate and expectations.
In September, annual inflation in Turkey rose to 33.29%, slightly above the 32.95% recorded in August and exceeding market expectations. Since April, the Turkish Central Bank has made several moves in its interest rate policy: first raising them to 46% in a surprise move and then applying successive cuts, including a 250 basis point cut in September that left the benchmark interest rate at 40.5%.
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Pablo Gómez is a specialist in Turkey and has been editor-in-chief of Hispanatolia since 2011. He has been analysing current affairs and geopolitics in Turkey and the surrounding region since 2006.
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