Turkey's central bank lowers benchmark interest rate to 45%

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ANKARA, Turkey (AP) — Turkey’s central bank lowered its key interest rate by 2.5 percentage points to 45% on Thursday, in its second rate cut in as many months as official figures showed inflation was easing.

The bank’s Monetary Policy Committee said it was reducing its benchmark one-week repo rate to 45% from the current 47.5%. In its previous reduction in December, the bank also cut the rate by 2.5 percentage points.

Despite the significant rate cut, the central bank reaffirmed its commitment to controlling soaring inflation which has left many households in Turkey struggling to afford basic needs.

“While inflation expectations and pricing behavior tend to improve, they continue to pose risks to the disinflation process,” the bank said in a statement. “The Committee will make its decisions prudently on a meeting-by-meeting basis with a focus on the inflation outlook.”

Annual inflation in Turkey slowed to 44.38% in December 2024 from 47.09% in the previous month, although independent economists say the real rate is much higher.

Inflation surged in recent years, due to a depreciation of the Turkish lira and President Recep Tayyip Erdogan’s unconventional economic policies of lowering interest rates despite high inflation.

Erdogan has long argued that high interest rates cause inflation — a theory that runs against mainstream economic theory.

In 2023, Erdogan appointed a new economic team, reversing the unconventional policies and initiating a series of rate hikes. Before the rate cut in December, the central bank had maintained the interest rate at 50% for several months.