Turkey’s central bank has reduced its benchmark one-week repo rate by 2.5 percentage points, bringing it down to 42.5% for the third consecutive month. This move comes as official data shows that inflation in Turkey has eased to 39.1% in February, the lowest level observed since June 2023.
The rate cut is intended to make borrowing less expensive for businesses and households and is part of an ongoing disinflationary process that began after a period of extremely high interest rates, which were initially used to curb runaway inflation. Over the past few months, the central bank has reduced rates by a total of 7.5 percentage points since December.
Despite the lower rates, there remains a risk that inflation expectations among businesses and households could persist above the central bank’s projections, potentially undermining the disinflation effort. Additionally, Turkish depositors continue to save in foreign currencies to hedge against concerns over further depreciation of the lira, which has already declined by about 3% against the US dollar this year.
The central bank reiterated its commitment to maintaining tight monetary conditions, while also calling for greater fiscal coordination to support economic stability.
