Turkey’s Central Bank Takes Bold Step to Tame Soaring Inflation
In a move aimed at curbing the country’s rampant inflation, Turkey’s central bank has slashed its key interest rate by 2.5 percentage points to 45%. This marks the second rate cut in as many months, following a similar reduction in December.
A Shift in Monetary Policy
The bank’s Monetary Policy Committee attributed the decision to the easing of official inflation figures. The benchmark one-week repo rate has been reduced from 47.5% to 45%, signaling a shift in the country’s monetary policy. This move is seen as a bid to strike a balance between controlling inflation and stimulating economic growth.
Inflation Remains a Concern
Despite the significant rate cut, the central bank remains committed to tackling soaring inflation, which has left many Turkish households struggling to afford basic necessities. The bank acknowledged that while inflation expectations and pricing behavior are improving, they still pose risks to the disinflation process.
A Prudent Approach
The Committee emphasized that it will make decisions on a meeting-by-meeting basis, with a focus on the inflation outlook. This cautious approach is likely to continue, as the bank navigates the complex task of bringing inflation under control.
The Inflation Conundrum
Annual inflation in Turkey slowed to 44.38% in December 2024, down from 47.09% in the previous month. However, independent economists argue that the real rate is much higher. The surge in inflation in recent years has been attributed to the depreciation of the Turkish lira and President Recep Tayyip Erdogan’s unorthodox economic policies.
A Change in Course
In 2023, Erdogan appointed a new economic team, which reversed the unconventional policies and initiated a series of rate hikes. The central bank had maintained the interest rate at 50% for several months before the December rate cut.
A Delicate Balance
As Turkey’s central bank continues to grapple with the challenges of inflation, it must strike a delicate balance between controlling prices and stimulating economic growth. The outcome of this balancing act will have far-reaching implications for the country’s economy and its people.
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