ISTANBUL, Dec 11 (Reuters) – Turkey’s central bank lowered its policy interest rate by 150 basis points to 38% on Thursday, cutting at the higher end of expectations, as data over the last two months suggested that disinflation is back on track after summer price pressure.
The bank’s policy-making committee said inflation expectations and pricing behaviour are “showing signs of improvement” even as they continue to pose risks to the disinflation process.
Consumer prices rose 31.1% year-on-year in November, with a 0.87% monthly increase, both readings below expectations and helped by easing food prices. Inflation had been above forecasts in August and September, but below them in October and November.
“Following an increase in September, the underlying trend of inflation declined slightly in October and November,” a month in which it was “lower than expected due to a downward surprise in food prices,” the committee said.
“Leading indicators for the last quarter point out that demand conditions continue to support the disinflation process,” it added.
In a Reuters Poll, the median estimate was for a 100 basis-point decrease in the one-week repo rate, though responses were largely split with some economists forecasting a sharper cut of 150 points or more.
After a policy reversal earlier this year due to political turmoil, Turkey’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.
The poll, conducted last week, suggested the central bank will continue easing next year, bringing its policy rate to 28% by the end of 2026.
The central bank has pledged to reach its 16% interim inflation target by end-2026, even as markets are sceptical. The bank projects 2026 inflation between 13% and 19%.
One decision that would affect both the inflation and rates path is how much authorities decide to raise the minimum wage for next year, a debate in which workers are pressing for an increase that offsets past losses, especially for low-income households.
A commission of government, labour, and employer members will open debate on the matter in Ankara on Friday.
(Reporting by Ezgi Erkoyun and Ece Toksabay; Editing by Jonathan Spicer and Daren Butler)
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