Turkey cuts interest rates for the first time in 22 months in a major reduction

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Turkey’s central bank cut its key interest rate for the first time in nearly two years, pointing to slower consumer demand and monetary strength for a bigger-than-expected rate cut 250 basic.

Policy makers have lowered the benchmark rate to 47.5 percent from 50 percent in the first reduction since January 2023, the President. Recep Tayyip Erdogan he pushed for lower borrowing costs to spur economic growth during his re-election campaign. The rate was greater than forecasts of a reduction of 48.25 percent, according to economists polled by Bloomberg.

Annual consumer price inflation fell to 47 percent in November, down from a peak of nearly 86 percent in October 2022. The government’s decision earlier this week to raise the minimum wage by 1 percent Only 30 next year may have prompted the central bank. prompt to reduce rates, analysts said.

The central bank said it saw signs of decrease in price than in December, but noted that it was not abandoning its tight monetary policy.

“They . . . the level will be maintained until a significant reduction in the main method of monthly inflation”, it said on Thursday, increasing rates will be decided by meeting-by-meetings.

The central bank said on Wednesday that it will meet eight times in 2025 to set rates, instead of the usual 12 meetings.

“The central bank has indicated that it may choose to delay or pause in future meetings,” said Hakan Kara, chief economist at Turkey’s central bank, noting that the small wage increase is very small. than the previous one, it gave “some freedom” for reduction.

Erdoğan said in a post on X late Tuesday that the minimum wage will be 22,104 riyals ($627) a month, a move welcomed by investors as a sign of his commitment to reduce consumer demand and inflation. About a third of Turkish workers receive the minimum wage, and the annual change serves as a guide for further wage increases.

But labor unions blasted the new wage rate, the head of Türk-İş, a union with 1.75 million members, calling it “unacceptable.”

Consumer prices rose by 0.07 percent for every one percent increase in Turkey’s minimum wage, the central bank calculated last year. Türk-İş said that removing the hunger threshold for a family of four requires a monthly income of 20,562 lira.

Erdoğan has raised aggressive bonuses to win over voters ahead of the 2023 and 2024 elections. But recently he has used smart policies to attract foreign investors who have been deterred by the country’s years of low interest rates. it’s going down a lot. . Turkey started raising tariffs in June 2023.

The government must now meet its commitment to reduce spending and strengthen tax revenue to lower inflation, which is predicted by the central bank to reach 14 percent by the end of next year, analysts said.

“The central bank plays a very important role,” Kara said. “Achieving the desired inflation targets will only be possible with a number of fiscal and institutional reforms.”