MNI CBRT WATCH: CBRT Cuts 300Bp as Underlying Inflation Flat

The Central Bank of Turkey cut all three key interest rates by 300 basis points on Thursday and hinted at more easing to come, after June data showed the underlying trend of inflation remained flat for a second month. (See MNI EM CBRT WATCH: Inflation Fall Means Return To Easing Seen)

Despite expecting a temporary rise in monthly price pressures in July, the disinflationary impact of demand conditions has strengthened, the CBRT said in a statement, as it lowered the one-week repo auction rate to 43% percent, the overnight lending rate to 46%, and the overnight borrowing rate to 41.5%.

“The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” the statement added - 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 for changes.

The CBRT also deleted phrasing from June's statement referring to “decisiveness regarding tight monetary stance" and cut references to “taking into account the lagged effect of monetary tightening” and to using all monetary policy tools “decisively.” The latest statement did repeat that liquidity management tools will still be used where necessary.

The Bank reiterated that inflation expectations and pricing behaviour pose risks to the disinflation process, and that it will monitor the potential effects of geopolitical developments and rising trade protectionism closely. Future decisions will cbe made in a “predictable, data-driven and transparent framework,” as the Bank targets 5% inflation over the medium-term.