Turkey's Central Bank Cuts Interest Rate to 42.5%

In its statement, the Monetary Policy Committee (MPC) noted that inflation, after rising in January, showed a decline in February. Core goods inflation remained relatively low, while services inflation slowed following a temporary spike at the beginning of the year. The central bank also highlighted that domestic demand in the fourth quarter had exceeded expectations but remained at levels supportive of disinflation. Early data suggested that this trend continued into the first quarter of 2025.

The committee reiterated its commitment to a tight monetary policy stance, emphasizing that it would be maintained until inflation showed a sustained decline and price stability was achieved. The impact of monetary policy on credit and deposit markets, as well as on domestic demand, was being closely monitored. While inflation expectations and pricing behavior showed signs of improvement, the bank warned that risks to the disinflation process remained.

The statement also underscored that monetary policy was contributing to the disinflation process through balanced domestic demand, the real appreciation of the Turkish lira, and improved inflation expectations. The central bank stressed that coordination with fiscal policy would play an important role in this process. It reaffirmed that the policy rate would continue to be set in a way that ensures the necessary level of monetary tightness for the expected disinflation trend.

To reinforce tight monetary conditions and maintain macro-financial stability, the TCMB announced additional measures, particularly in response to recent credit growth trends. It stated that if unexpected developments occurred in credit and deposit markets, further macroprudential steps would be taken. Liquidity conditions would be closely monitored, and sterilization tools would be used effectively.

The central bank also reiterated its commitment to its 5% inflation target, emphasizing that all monetary policy tools would be used decisively. Future policy decisions would be taken in a predictable, data-driven, and transparent framework, ensuring that inflation expectations remained anchored and the disinflation process stayed on track.