The Central Bank of the Republic of Turkey (CBRT) surprised markets by significantly reducing its one-week repo rate. Specifically, they cut it by 250 basis points, bringing it down to 47.5%. This move, exceeding economists’ predictions of a 150 basis point reduction, signals a major shift in Turkey’s monetary policy. This shift comes after eight consecutive meetings. The decision coincides with a continued downward trend in inflation. The annual consumer price index (CPI) fell to 47.09% in November, marking the lowest level since June 2023. This also marks the sixth consecutive month of disinflation, with month-over-month inflation rising by just 2.24%, the smallest increase in five months.
Economic Outlook Improves with Disinflationary Trends
The CBRT attributes the easing inflationary pressure to moderating domestic demand. Furthermore, they cite an improvement in service sector prices. Core goods inflation remains subdued. Notably, unprocessed food inflation, previously a concern, also shows signs of improvement. While the central bank acknowledges remaining inflation risks, they project continued inflation reduction. They target 21% by the end of 2025 and 12% by the end of 2026, with a long-term target of 5%. This cautious approach aims to ensure the sustainability of disinflationary momentum. Moreover, it seeks to maintain the stability of the Turkish lira.
Turkey’s Economic Stabilization Gains Global Recognition
Turkey’s recent stabilization efforts have garnered international recognition. In November, Standard & Poor’s upgraded Turkey’s long-term sovereign credit rating from B+ to BB-. This upgrade reflects improvements in monetary policy and lira stabilization. The bank also highlighted foreign reserve accumulation and the shift to being a net foreign currency buyer as positive developments. These efforts have contributed to reducing Turkey’s current account deficit. Despite these positive steps, the OECD projects Turkey’s GDP growth to slow. This slowdown is attributed to macroeconomic stabilization measures.
Market Reactions and Lira Stability
Despite the rate cut, the Turkish lira has remained relatively stable. The euro-lira exchange rate has held steady. The lira has strengthened against the euro since November. However, it has depreciated against the euro over 2024. The CBRT’s cautious stance, coupled with fiscal coordination, will play a crucial role in guiding Turkey toward sustained economic stability. SuperMetalPrice observes that a sharp rate cut, especially in a developing economy, can have a ripple effect on global commodities, including metals, due to possible shifts in investment and trade flows.
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