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Turkey Monetary Policy December 2019

Turkey: Central Bank cuts rate more than expected in December

Turkey’s Central Bank once again took market analysts by surprise on 12 December, with the Monetary Policy Committee deciding to cut rates by more than had been expected. The latest decision to cut the one-week repo rate by 200 basis points brought the rate down to 12.00% from 14.00%. Since the appointment of Governor Murat Uysal on 6 July, the one-week repo rate has been slashed by 1,200 basis points.

The decision to lower the rate was driven by a continued improvement in the inflation outlook, according to the Bank, as well as to support the ongoing economic recovery, with the Turkish economy still finding its feet following last year’s currency crisis. Inflation moved down to single-digit territory in September and October, largely due to a supportive base effect as inflation reached its peak in October last year, although returned to double digits in November (10.6%) as had been widely expected by markets. Moreover, looking ahead, FocusEconomics panelists forecast inflation to end this year and next above the 10% mark. That said, the Bank noted that the more stable currency as of late bodes well for managing inflation going forward.

In the accompanying press communiqué, the Central Bank sounded slightly less dovish compared to the prior meeting, stating that “the current monetary policy stance is considered to be consistent with the projected disinflation path”, while it deemed its stance at the 24 October meeting to be largely consistent with that path.

The next Monetary Policy Committee meeting is scheduled for 16 January.

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