MNI CBRT Review - July 2025: A Large Cut and an Easing Bias

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Executive summary:

• The CBRT’s 300bp cut to the one-week repo rate came as a slight surprise compared to market expectations, though a minority of analysts had been expecting a larger step than the median forecast of 250bps.
• The flat trend of underlying inflation in June justified easing, but persistent threats to the disinflation process means that future decisions will be made prudently on a meeting-by-meeting basis.
• Sell-side analysts expect the repo rate to end the year in the low- to mid-30s.

The central bank made equal adjustments to the upper and lower rates of its interest rate corridor, thereby maintaining the 300bp gap between the overnight lending rate (46%) and the policy rate (43%). This provides policymakers with the flexibility to tighten conditions by shifting funding across windows – demonstrated during the episode of political turmoil in March/April.

In its policy statement, the CBRT stated that “The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” a change from the previous month’s guidance which just referred to adjusting the policy rate on a meeting-by-meeting basis, without specifying a direction. The central bank also notes that underlying inflation remained flat in June, though a temporary rise in monthly inflation is expected in July due to month-specific factors.