by Burak Akinci
ANKARA, Jan. 23 (Xinhua) -- Türkiye's central bank on Thursday cut its benchmark interest rate by 250 basis points to 45 percent amid an improved inflation outlook, marking its second rate cut after keeping rates steady for months.
"While the underlying trend of inflation decreased in December, leading indicators point to an increase in January, in line with the projections. This increase is mainly driven by services items with time-dependent pricing and backward indexation," the bank's Monetary Policy Committee said in a statement.
"The tight monetary stance will be maintained until price stability is achieved via a sustained decline in inflation," the statement noted.
The bank stated that the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation, as well as and the underlying trend.
Türkiye has been grappling with rising inflation for years. From June 2023 to March 2024, the central bank raised its key interest rate from 8.5 percent to 50 percent to tighten monetary policy, and then kept the interest rate unchanged from March to December.
In December, Türkiye's annual inflation fell to 44.4 percent, the lowest level in 18 months, according to the Turkish Statistical Institute. The figure was over 75 percent in May last year.
On Dec. 26, the bank implemented its first rate cut in nearly two years, reducing the rate from 50 percent to 47.5 percent with a 250-basis-point cut.
At the end of last year, Turkish President Recep Tayyip Erdogan vowed to continue fighting inflation in 2025 and further slashing interest rates.
"Interest rates will decrease so that inflation will decrease. We will take this step. This is now indispensable for us," Erdogan told members of his ruling Justice and Development Party.
Erdogan stressed that the government's economic and monetary strategies prioritize maintaining price stability and enhancing public well-being.
According to the central bank's Survey of Market Participants for January 2025, 68 participants from Turkish financial and real sectors predict that annual inflation by the end of 2025 will be 27.05 percent, and that by the end of 2026 will be 18.67 percent.
A survey by state-run Anadolu news agency showed that participating economists predict the average year-end policy rate for 2025 at 30 percent.
Senol Babuscu, an economist and scholar at Ankara's Baskent University, told Xinhua that the December inflation rate created room for additional easing.
"The bank appears to consider that the inflation outlook will improve in the coming months, therefore continues to lower its policy rate," Babuscu said, adding that further rate cuts may be likely if the monthly price consumer index does not deteriorate.
Noting that the latest rate cut "is in line with market expectations," Istanbul-based economist Atilla Yesilada told Xinhua the central bank will be allowed to assess January and February inflation data before making its rate decision during its next meeting in March.
Expecting the rate to exceed the central bank's 21 percent year-end target for 2025, Yesilada said that "to retain credibility, the bank should announce that it would stop or reverse rate cuts if the inflation trend deviates from path."
Meanwhile, Faith Ozatay, an economic analyst from Ankara's Economic Policy Research Foundation of Türkiye, said in a recent article that conditions are not yet favourable for reduced rates.
"I believe that new rate cuts would be premature," he said, noting that albeit declining, year-on-year inflation is still significantly elevated for the central bank to ease its monetary policy.