By Ezgi Erkoyun and Ece Toksabay
ISTANBUL, Jan 22 (Reuters) – Turkey’s central bank lowered its key interest rate by a less-than-expected 100 basis points to 37% on Thursday, citing firming inflation, pricing behaviour and expectations that threaten the disinflation process.
The cut to the one-week repo rate at the bank’s first policy meeting of the year marked its fifth consecutive easing move since last summer.
In a Reuters Poll, the median estimate was for 150 basis points – the same size cut as in December – though a couple of economists had predicted a smaller decrease in the benchmark rate given that disinflation is expected to slow in coming months.
“While showing signs of improvement, inflation expectations and pricing behaviour continue to pose risks to the disinflation process,” the central bank’s policy committee said after the decision.
“While leading indicators suggest that monthly consumer inflation has firmed in January, led by food prices, the rise in the underlying trend of inflation is limited,” it said, adding that demand conditions toward the end of 2025 supported disinflation at a “moderating pace”.
JANUARY INFLATION CONCERNS
Consumer prices rose 30.9% year-on-year in December, with a 0.89% monthly increase, with both readings below expectations and helped by easing food prices. But given a series of new-year price updates and a 27% rise in the minimum wage for 2026, inflation readings beginning in January are expected to be volatile.
The “decision to slow the easing cycle may have been driven by an expected stalling in the disinflation process in January,” Capital Economics said in a note.
President Tayyip Erdogan stressed the government’s inflation-fighting effort in a speech shortly after the rate cut.
“We are managing the fight against inflation with comprehensive policy steps that are consistent and complementary. The impact of the steps we are taking will be reflected more in food prices, market prices, and rents,” Erdogan said. “Our citizens will feel the decrease in the cost of living more.”
However, the head of the Turkish Exporters Assembly told reporters late on Wednesday that Turkey’s extended period of tight economic policies had hurt manufacturers, with high interest rates and costs posing risks to the country’s official $282 billion export target.
ECONOMISTS SEE MORE RATE CUTS IN 2026
After a brief policy reversal early last year due to political turmoil, the central bank’s rate-cutting cycle resumed in July with a 300-basis-point move, followed by cuts of 250 points and then 100 in October amid rising food prices, before the last two cuts of 150 in December then 100 points this week.
The bank has eased by 900 basis points since last summer, and by 1,300 points since 2024 when it had held rates at 50% for most of that year to wrestle down inflation expectations.
The Reuters poll conducted last week suggested the central bank will continue easing, bringing its policy rate to 28% by the end of this year.
The bank has pledged to reach its 16% interim inflation target by the end of 2026, and projects a range between 13% and 19% – even as markets are sceptical and predict higher year-end readings.
(Reporting by Ezgi Erkoyun and Ece Toksabay; Editing by Jonathan Spicer, Daren Butler and Toby Chopra)
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