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Turkey's central bank cut its key interest rate for the first time in nearly two years, citing slowing consumer demand and a strong currency for a larger-than-expected cut of 250 basis points.
Policymakers cut the benchmark interest rate to 47.5% from 50% in the first cut since February 2023, when President Recep Tayyip Erdogan called for lower borrowing costs to stimulate economic growth during his re-election campaign. The cut was larger than the average forecast of a 48.25 percent cut, according to economists surveyed by Bloomberg.
Annual consumer price inflation fell to 47 percent in November, down from a peak of about 86 percent in October 2022. The government's decision earlier this week to raise the minimum wage by 30 percent may only Next year may encourage the central bank to take strict precautionary measures. Analysts said the move to lower interest rates.
Turkey's central bank said it saw signs of inflation slowing further in December, but indicated it would not abandon its tight monetary policy.
“This position will be maintained until a significant decline in the underlying trend of monthly inflation is observed,” he said on Thursday, adding that interest rates will be set on a meeting-by-meeting basis.
The bank said on Wednesday that it will meet eight times in 2025 to set interest rates, instead of the usual 12 meetings.
“The central bank has indicated that it may choose to slow down or pause in upcoming meetings,” said Hakan Kara, former chief economist at the Turkish Central Bank, who noted that the minimum wage increase, which is much lower than previous increases, provides “some leeway.” In order to reduce.
The minimum wage will net 22,104 liras ($627) per month, Erdogan said in a post on X late Tuesday, a move welcomed by investors as evidence of his commitment to slowing consumer demand and inflation. About a third of Turkish workers receive the minimum wage, and the annual change serves as a guide for further salary increases.
But labor groups criticized the new wage rate, and the head of the Türk Iş union, which has 1.75 million members, described it as “unacceptable.”
Consumer prices rose by 0.07 percent for every percentage point increase in the Turkish minimum wage, according to Central Bank calculations last year. Türk-ISS said that exceeding the hunger threshold for a family of four currently requires a monthly wage of 20,562 lira.
Erdogan has significantly boosted salaries to win voter support ahead of elections in 2023 and 2024. But he has recently focused on more market-friendly policies to attract foreign investors hampered by years of low interest rates when the country suffered from severe bouts of inflation. . Türkiye began raising interest rates in June 2023.
Analysts said the government must now fulfill its pledges to reduce spending and increase tax revenues to reduce inflation, which the central bank expects to reach 14 percent by the end of next year.
“The central bank is very much playing its role,” Kara said. “Achieving the desired inflation targets will only be possible through further fiscal and institutional adjustments.”
