Turkiye's central bank lowers key interest rate to 47.5%, 1st cut in 2 yrs

Turkiye's central bank lowered its key interest rate by 2.5 percentage points to 47.5 per cent on Thursday, carrying out its first rate cut in nearly two years as it tries to control soaring inflation.

Citing slowing inflation, the bank's Monetary Policy Committee said it was reducing its one-week repo rate to 47.5 per cent from the current 50 per cent.

The committee said in a statement that the overall inflation trend was flat in November and that indicators suggest it is likely to decline in December. Demand within the country was slowing, helping to reduce inflation, it said.

Inflation in Turkey surged in recent years due to declining foreign reserves and President Recep Tayyip Erdogan's unconventional economic policy of lowering rates as a way to tame inflation which he later abandoned.

Inflation stood at 47 per cent in November, after having peaked at 85 per cent in late 2022, although independent economists say the real rate is much higher than the official figures.

Most economists argue that higher interest rates help control inflation, but the Turkish leader had fired central bank governors for failing to fall in line with his previous rate-cutting policies.

Following a return to more conventional policies under a new economic team, the central bank raised interest rates from 8.5 per cent to 50 per cent between May 2023 and March 2024. The bank had kept rates steady at 50 per cent until Thursday's rate cut.

The high inflation has left many households struggling to afford basic goods, such as food and housing.