Turkey Cuts Rates Again, Signals Further Easing
Turkey's central bank has lowered its main interest rate for a second consecutive month, to 45% from 47.5%, and hinted at similar cuts in future meetings.
The Monetary Policy Committee removed references to monthly inflation and the convergence of inflation expectations from its policy statement. Instead, it stated that monetary policy will be based on both expected and realized inflation.
Economists interpret these changes as a signal of continued rate cuts. The central bank aims to maintain a tight monetary stance until inflation falls sustainably.
Despite easing policy, the bank expects real interest rates to remain high, maintaining the carry trade attractiveness for emerging market investors.
To manage excess liquidity, the central bank plans to adjust measures like extending maturities on lira deposit auctions.
The challenge for Turkey remains balancing rate cuts to support growth while managing inflation expectations. The central bank acknowledges that high inflation expectations pose a risk to disinflation.
Governor Fatih Karahan will present updated inflation projections on February 7th. Investors generally prefer a slower easing cycle to allow high real rates to curb inflation.