Breaking: Central Bank announces fifth interest rate decision of the year! Cut exceeds expectations...

The Central Bank has announced its July interest rate decision, which markets had been watching closely. The Monetary Policy Committee cut rates by 300 basis points, lowering the policy rate to 43 percent.

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Breaking: Central Bank announces fifth interest rate decision of the year! Cut exceeds expectations...

The Monetary Policy Committee (MPC) of the Central Bank of the Republic of Türkiye (CBRT) convened under the chairmanship of Fatih Karahan.

Following the critical meeting, the July interest rate decision was announced. The CBRT MPC lowered the policy rate to 43 percent.

The Central Bank's statement reads as follows:

The Monetary Policy Committee (the Committee) has decided to reduce the policy rate, i.e. the one-week repo auction rate, from 46 percent to 43 percent. The Committee has also lowered the Central Bank overnight lending rate from 49 percent to 46 percent, and the overnight borrowing rate from 44.5 percent to 41.5 percent.

The underlying trend of inflation remained flat in June. Leading indicators suggest that monthly inflation will temporarily rise in July due to seasonal factors. Recent data indicate that the disinflationary impact of demand conditions has increased. The potential effects of geopolitical developments and rising protectionism in global trade on the disinflation process are being closely monitored. Inflation expectations and pricing behavior continue to pose a risk to the disinflation process.

The tight monetary policy stance, which will be maintained until price stability is achieved, will support the disinflation process through demand rebalancing, real appreciation of the Turkish lira, and improvement in inflation expectations. Coordination with fiscal policy will contribute to this process. The Committee will determine the steps to be taken regarding the policy rate in a manner that will ensure the degree of tightness required by the projected disinflation, taking into account inflation outturns, the underlying trend, and expectations. The size of the steps will be reviewed with an inflation-outlook-focused, meeting-by-meeting, and cautious approach. In the event of a significant and persistent deterioration in inflation, all monetary policy tools will be used effectively.

Should developments in credit and deposit markets deviate from projections, the monetary transmission mechanism will be supported by additional macroprudential measures. Liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively.

The Committee will set its policy decisions in a way that will ensure the monetary and financial conditions necessary to bring inflation down to the 5 percent medium-term target. The Committee will make its decisions within a predictable, data-driven, and transparent framework.

The Monetary Policy Committee Meeting Summary will be published within five business days.

At its June MPC meeting, the Central Bank had kept the policy rate unchanged at 46 percent.

WHAT WERE THE EXPECTATIONS?

Of the economists who participated in the AA expectations survey, 11 forecast a 250 basis point cut in the policy rate, 4 forecast a 300 basis point cut, and 6 forecast a 350 basis point cut.

The median of economists' expectations for the July MPC decision was for the policy rate to be cut by 250 basis points to 43.50 percent.

The median of economists' year-end policy rate expectations was 35 percent.