Central Bank cuts policy rate for the first time in eight months

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The Central Bank has cut its interest rate by 100 basis points from 14 to 13 percent.

After Russia and China, Türkiye lowered rates, despite economists' previous expectations that they would remain unchanged.

Following the decision, the Turkish lira dropped to 18.06 against the US dollar.

"Increase in inflation is driven by the lagged and indirect effects of rising energy costs resulting from geopolitical developments," the bank said, adding that the effects of "pricing formations" not supported by economic fundamentals, as well as strong negative supply shocks caused by the rise in global energy, food, and agricultural commodity prices were also responsible for climbing inflation.

The country's annual inflation rate was at 79.6 percent in July, up from 78.6 percent in June.

Expected disinflation

The bank also said it expects the process of disinflation to start amid measures to strengthen sustainable prices and financial stability, along with the resolution of ongoing "the regional conflict."

The bank underlined that leading indicators for the third quarter pointed to a loss of momentum in economic activity, and financial conditions remained supportive of preserving "growth momentum in industrial production."

It said robust growth continued in the second quarter thanks to external demand, adding that, compared to "peer economies," job creation has been stronger.

While the share of "sustainable components" in economic growth rises, stronger-than-expected contributions from tourism revenues to the current account balance continues, it said.

It vowed to "continue to use all available instruments decisively within the framework of liraization strategy until strong indicators point to a permanent fall in inflation."

The bank previously projected inflation to hit 60.4 percent by the end of this year and 19.2 percent by the end of 2023.

The Turkish economy is estimated to have grown 1.2 percent in the first quarter of 2022 from the previous quarter, according to the OECD.

Year-on-year, January-March is expected to see annual growth of 7.4 percent, compared to the same period of last year.

Central Bank's course of policy rate changes

In the period when Central Bank Governor Murat Çetinkaya was removed from office on July 6, 2019 and Murat Uysal was appointed in his place

In July 2019, from 24 percent to 19.75 percent
In September 2019, from 19.75 percent to 16.50 percent
In October 2019, from 16.50 percent to 14 percent
In December 2019, from 14 percent to 12 percent
In January 2020, from 12 percent to 11.25 percent
In February 2020, from 11.25 percent to 10.75 percent
In March 2020, from 10.75 percent to 9.75 percent
In April 2020, from 9.75 percent to 8.75 percent
In May 2020, from 8.75 percent to 8.25 percent
In September 2020, from 8.25 percent to 10.25 percent
In October 2020, from 10.25 percent to 15 percent

In the period when Murat Uysal was removed from office as the Central Bank Governor and Naci Ağbal was appointed in his place

In December 2020, from 15 percent to 17 percent
In March 2021, from 17 percent to 19 percent

In the period when Naci Ağbal was removed from office on March 20, 2021 and Şahap Kavcıoğlu was appointed in his place

In September 2021, from 19 percent to 18 percent
In October 2021, from 18 percent to 16 percent
In November 2021, from 16 percent to 15 percent
In December 2021, from 15 percent to 14 percent
In August 2022, from 14 percent to 13 percent

* In the months that are not indicated in this table, the policy rate was kept unchanged (The Monetary Policy Committee of the Central Bank convenes every month).

(HA/VK)

Central Bank cuts policy rate for the first time in eight months

İstanbul

Expected disinflation

Central Bank's course of policy rate changes