Bank of Turkey continues interest rate cuts

The central bank of Turkey cut its key interest rate by 250 basis points yesterday, amid slowing inflation, hispanatolia.com reports. This was the third consecutive monthly cut in the key interest rate.

The Bank of Turkey's Monetary Policy Committee cut the interest rate to 42.5%, from 45%, as analysts had expected. They expect the Bank of Turkey to ease monetary policy at the same pace at its next seven meetings this year.

According to official data, Turkey's annual inflation rate fell below 40% for the first time in almost two years. The central bank in Ankara is targeting an inflation rate of 21% by the end of the year.

The Bank of Turkey said in a statement that it would monitor inflationary trends and adjust interest rates cautiously in future monetary policy meetings.

The statement said: "Although inflation expectations and price developments are tending to improve, they continue to pose risks to the disinflationary process. Monetary policy tools will be used effectively if a persistent and significant deterioration in inflation is expected."

In February, Turkey's annual inflation rate fell to 39.05%, from 42.12% in January, according to the Turkish Statistical Institute.

Price developments in the first months of this year will be decisive in setting interest rates, analysts say.

• Turkey's economy grows faster than expected

Turkey's economy grew 3% in the fourth quarter of 2024 at an annual rate and 3.2% for the whole of last year, beating estimates despite high interest rates in the country, according to data from the National Institute of Statistics in Ankara.

The government, which had initially forecast 3.5% growth in 2024, revised its forecast downwards, amid tightening domestic demand and efforts to slow inflation, which exceeded 75% in May and is now just above 40%.

"Last year, we recorded a balanced economic growth, with a contribution of 2.1 points from domestic demand and 1.1 points from net external demand," said Turkish Finance Minister Mehmet Simsek, adding: "More favorable financial conditions, lower inflation, increased predictability of our policies and improved confidence have a positive effect on economic activity. Good economic developments in Turkey's trading partners, more encouraging global financial conditions and moderate expectations for commodity prices will boost economic growth in 2025, but increasing protectionist policies in global trade and geopolitical developments are among the risk factors." Analysts surveyed by Reuters had expected Turkey's GDP to grow 2.6 percent in the fourth quarter of 2024 and 3 percent in the full year. They expect Turkey's economy to expand by 3.1% in 2025, significantly lower than the 5.1% growth in 2023, reflecting the effect of higher interest rates.