MNI CBRT WATCH: Cuts 150 Bp, Underlines Continued Tight Policy

The Central Bank of the Republic of Turkey cut its key interest rates 150 basis points on Thursday, to leave the policy rate at 38%, the overnight lending rate at 41%, and the overnight borrowing rate at 36.5%. (See MNI EM CBRT WATCH: 100-150Bps Cut Seen After Nov Inflation Beat)

At its previous policy meeting in October the CBRT cut rates by 100bps, despite noting an increase in September's underlying inflation and the likelihood of a slowdown in the disinflationary process. However inflation was lower than expected in November due to a downward surprise in food prices, the Bank said in a statement. 

Leading indicators for the last quarter continue to suggest that demand conditions support the disinflation process, although the underlying trend in inflation declined only “slightly” in October and November.

EXPECTATIONS

Inflation expectations and pricing behaviour are also improving, the CBRT said, yet both pose continued risks to the inflation process. (See MNI EM INTERVIEW: More CBRT Cuts Boost De-anchoring Risk - Cangoz)

Policymakers reiterated that tight monetary conditions will be maintained until price stability is achieved, and in line with interim targets. The step size of future cuts will continue to be reviewed on a meeting-by-meeting basis with a focus on the inflation outlook. (See MNI EM INTERVIEW: CBRT To Focus On Real Rate Stability - Demiralp)