Turkey’s central bank lowered its key interest rate by 2.5 percentage points on Thursday, its third consecutive cut, reacting to a slowdown in inflation in the country.
Turkey lowered its benchmark one-week repo rate from 45% to 42.5% on Thursday.
The decision came after official data showed annual inflation dipping below 40% for the first time in nearly two years.
In a statement released after the committee meeting, the bank said it would review inflation trends and adjust rates cautiously in upcoming policy meetings.
“While inflation expectations and pricing behaviour tend to improve, they continue to pose risks to the disinflation process,” the bank said.
“Monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen.”
Annual inflation in Turkey slowed to 39.1% in February from 42.1% in the previous month, according to the Turkish Statistical Institute.
However, a group of independent economists have raised concerns about the official inflation figures and estimate the rate to be significantly higher.
High inflation in Turkey has been attributed to a combination of factors, including rising energy prices and the economic fallout from the COVID-19 pandemic.
Analysts also blame the past economic policies of President Recep Tayyip Erdogan – who unconventionally decided to lower interest rates in the face of soaring inflation.
Erdogan has long argued that high interest rates cause inflation, a theory that runs contrary to mainstream economic theory.
In 2023, President Erdogan appointed a new economic team, signalling a shift away from his unorthodox policies.
The team initially implemented a series of interest rate hikes to combat inflation.
After maintaining the interest rate at 50% for several months, the bank has embarked on a gradual cycle of rate cuts.