The Central Bank cut the policy rate by 250 basis points to 42.5%, staying in line with expectations.

In March, the Central Bank of the Republic of Turkey (CBRT) lowered the policy rate from 45% to 42.5% with a 250 basis point cut, as anticipated in the markets. This decision marks the third consecutive interest rate cut in a row for the CBRT. “INFLATION DECLINE WILL CONTINUE” The Monetary Policy Committee statement of the Central Bank included the following phrases: “The main trend of inflation has declined in February following an increase in January. During this period, core goods inflation has remained relatively low, while service inflation has slowed down following an increase in January.

Domestic demand, although above expectations in the fourth quarter, has been at supportive levels for the decrease in inflation. Leading indicators suggest that this supportive outlook is continuing in the first quarter of the year.

The impact of the monetary policy stance on credit and deposit markets and domestic demand is being closely monitored. Expectations of inflation and pricing behaviors show an improvement trend, but continue to pose a risk factor for the disinflation process. A TIGHT MONETARY POLICY STANCE WILL BE MAINTAINED.

The resolute stance in monetary policy, through balancing domestic demand, real appreciation of the Turkish lira, and improvement in inflation expectations, strengthens the disinflation process. The increasing coordination of fiscal policy will also contribute significantly to this process. Until a permanent decrease in inflation and price stability are ensured, a tight monetary policy stance will be maintained.

In this regard, the policy rate will be determined in a way that ensures the required tightness for the envisaged disinflation process while considering inflation developments, trends, and expectations. The Committee will determine the steps to be taken regarding the policy rate with a focus on the inflation outlook, in a cautious and meeting-based approach. In case of an expected significant and lasting deterioration in inflation, monetary policy tools will be effectively utilized.

ADDITIONAL STEPS TAKEN FOR A TIGHT STANCE

Taking into account recent developments in credit growth, additional measures have been taken to preserve macrofinancial stability and support the tight monetary stance. In case of developments in credit and deposit markets deviating from expectations, the monetary transmission mechanism will be supported with additional macroprudential measures. Liquidity conditions will be closely monitored, and sterilization tools will continue to be effectively used.

EMPHASIS ON 5% TARGET

The Committee will determine its policy decisions in a way that will bring down the underlying inflation trend and achieve the inflation target of 5% in the medium term, while taking into account the delayed effects of monetary tightening. In this regard, all monetary policy tools will be used decisively. The Committee will make decisions in a predictable, data-oriented, and transparent framework.”