MNI CBRT WATCH: Turkey Cuts 250BP, Removes Lira Reference

The Central Bank of the Republic of Turkey cut key interest rates by 250 basis points on Thursday to leave the key one-week repo rate at 40.5%, and removed a previous reference to real appreciation of the lira as a factor supporting the disinflation process. (See MNI EM CBRT WATCH: No July Repeat, But 250BP Cut On Table)

The underlying inflation trend slowed in August, and while GDP growth was above Q2 projections, final domestic demand remained “weak,” with recent data indicating that demand conditions “are at disinflationary levels,” the CBRT said.

Nevertheless, food prices and service items are still exerting upward pressure on prices, while inflation expectations, pricing behaviour, and global developments “continue to pose risks to the disinflation process,” it said.

“The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels,” the statement added.

The CBRT also tweaked the language around determining the policy rate, adding that it will take into account realised and expected inflation and its underlying trend in such a way to ensure the tightness required by the projected disinflation path “in line with the interim targets.”

The Monetary Policy Committee retained its commitment to reviewing the step-size of rate cuts “prudently on a meeting-by-meeting basis, with a focus on the inflation outlook.” 

However, whereas in July it said that “all monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen,” September’s statement stated that the “monetary policy stance will be tightened in case of a significant deviation in inflation outlook from the interim targets.”