ISTANBUL

Türkiye’s central bank on Thursday lowered its benchmark interest rate by 100 basis points, undershooting market expectations, as policymakers said the underlying trend of inflation continues to ease despite short-term pressures.

The Central Bank of the Republic of Türkiye cut the one-week repo rate to 37% from 38%, a smaller move than anticipated in an Anadolu survey.

In a statement, the bank said leading indicators suggest monthly consumer inflation rose in January, largely due to food prices, while the underlying inflation trend declined in December.

“Indicators for the last quarter point to demand conditions that continue to support the disinflation process, albeit at a moderating pace,” the bank said.

It added that inflation expectations and pricing behavior, while showing signs of improvement, “continue to pose risks to the disinflation process.”

The bank reiterated that it will maintain a restrictive monetary policy stance until price stability is achieved, saying this approach will support disinflation through demand, exchange rate and expectations channels.

To ensure consistency with its disinflation path and interim targets, the bank said it will set the policy rate by considering actual and expected inflation, as well as underlying trends.

“The Monetary Policy Committee will make its policy decisions so as to create the monetary and financial conditions necessary to reach the 5% inflation target in the medium term,” the statement said, adding that decisions will remain “predictable, data-driven and transparent.”

- Inflation, past meetings

Türkiye’s annual inflation rate eased to a 49-month low of 30.89% in December, down from 31.07% in November and below market expectations.

From May 2023 to March 2025, the central bank raised its policy rate from 8.5% to 50% before holding it steady until December 2024, when it cut rates by 250 basis points to 47.5%.

Further easing followed in August, with a 250-basis-point cut to 40.5%, and again in October with a 100-basis-point reduction to 39.5%.

At its previous meeting in December, the central bank lowered the policy rate by 150 basis points to 38%.