Is another interest rate cut by Turkey’s Central Bank on the horizon? - LEVENT YILMAZ

Is another interest rate cut by Turkey’s Central Bank on the horizon?

Last Thursday, we bore witness to the Central Bank Monetary Policy Committee (MPC)’s interest rate decision. The Board reduced the one-week repo auction rate, which is the policy rate, from 16% to 15%. An important guidance for the next meeting was also made in the text of the resolution.


As you will all recall, I have explained numerous times that the increase in global food and energy prices has for a while now become a thorn in the side of all economies. As things currently stand, the Turkish economy is also adversely affected by the global price increases in energy, food and logistics. As a matter of fact, there is a reference to this situation in the text of the MPC, drawing attention to this issue by including the following statement: “With regards to the recent rise in inflation; supply-side factors such as increases in import prices, especially food and energy, and disruptions in supply chains, increases in administered/directed prices and demand developments have exerted an influence.”


One of the issues that the MPC has been following closely for a while now is the course of commercial loans. On August 12, the MPC stated that commercial loans are following a moderate course. However, it was emphasized by the MPC in September that the tightness of the monetary stance resulted in a contractionary effect on commercial loans beyond what was anticipated, and a 100 basis point reduction was thus necessary.

Meanwhile, back in October, the MPC, which reduced interest rates by 200 basis points, made reference to the contraction in commercial loans in its statement at the time. Finally, in the last meeting, it was stated that the the previous cuts have begun to bear fruit when it comes to commercial loans.


While the MPC cut 200 basis points in October, it stated in its resolution that a "limited window remains until the end of the year for the downward correction in the policy rate". 

It is stated in the decision text of the last MPC meeting that the remaining part of this aforementioned limited window for manoeuver will be completed in December. 

We can interpret this to mean that a rate cut cycle will continue in December as well. Thus, the remaining 100 basis points of the 200 basis point reduction expectation, which has already manifest itself in the markets before the interest rate decision was announced in November, will come by the end of the year.


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