Turkey rate cut takes policy rate to 36% after five holds
Turkey's central bank lowered borrowing costs for the first time in six meetings, saying weak demand is slowing underlying inflation even as energy prices remain a risk.
The Turkey rate cut arrived on Thursday, Oct. 22. The Central Bank of the Republic of Turkey lowered its policy rate, the one-week repo auction rate, by 100 basis points to 36% from 37%, ending a run of five straight meetings without a change, Anadolu Agency reported. The move matched market expectations.
What happened
The Monetary Policy Committee, chaired by Governor Fatih Karahan, also cut the overnight lending rate to 39% from 40% and the overnight borrowing rate to 34.5% from 35.5%, so the whole corridor moved down by one point.
In its statement, the committee said that despite monthly swings, inflation readings and forward-looking indicators show the underlying trend easing. Weak activity and the small effect of supply shocks on local prices point to soft domestic demand, it added.
The bank did not drop its warnings. Elevated energy prices caused by geopolitical tensions "continue to pose an upside risk to the inflation outlook," the statement said, and it is watching how those events feed through costs, activity and expectations.
Why it matters
The committee said the size and timing of steps will be set "prudently on a meeting-by-meeting basis," and that policy will be tightened if the inflation outlook worsens significantly and persistently. It repeated that it aims for the 5% medium-term inflation target and that extra macroprudential tools are available if credit or deposit markets move unexpectedly.
The Turkey rate cut stands out on a day when other central banks leaned the other way or stood still. The Philippine central bank raised its key rate by a larger-than-expected 50 basis points, CNA reported, while the Bank of Korea held its rate at 3% after two hikes, CNBC said. Energy is the common thread: Brent crude settled above $113 a barrel on Thursday.
South Korea's decision shows the same tension. The Bank of Korea said it wanted time to assess the effect of its two earlier hikes and pointed to rising uncertainty around the Middle East conflict and the policies of major economies, CNBC reported. It held even though President Lee Jae Myung had reportedly urged an "all out effort" to boost housing supply.
Oil-driven inflation has pushed policy in several countries this month, as in our UK inflation at 3.5% report and the September U.S. CPI at 3.7% story. Turkey is betting that weak demand outweighs that pressure for now.
What's next
The committee also said liquidity conditions will be watched closely and liquidity management tools used effectively. Policy decisions will be made in a "predictable, data-driven and transparent framework," the statement added, language the bank has used as it tries to rebuild credibility after years of high inflation.
A summary of the meeting will be published within five working days, the bank said in its official statement. It will show how the committee weighed the energy risk against slower demand.
The language suggests no automatic path of further cuts. Any follow-up to this Turkey rate cut will depend on monthly inflation prints and on oil, which the bank names as the main upside risk.
This article is for information only and is not investment advice.