The Central Bank of the Republic of Türkiye (CBRT) has cut its benchmark one-week repo rate by 100 basis points to 36% from 37%, citing signs of easing underlying inflationary pressures and weak domestic demand.

In a statement following its Monetary Policy Committee (MPC) meeting, the bank said it had also reduced the overnight lending rate to 39% from 40% and the overnight borrowing rate to 34.5% from 35.5%.

The bank said recent inflation data and leading indicators pointed to a slowdown in the underlying trend of price increases, despite monthly fluctuations.

Economic activity data and the limited pass-through of supply shocks to domestic prices also suggested that domestic demand remained weak, supporting the disinflation process.

Energy prices and geopolitical tensions pose risks

The central bank warned, however, that elevated energy prices driven by ongoing geopolitical tensions continued to pose an upside risk to the inflation outlook.

It said it was closely monitoring the effects of geopolitical developments on inflation through production costs, economic activity and expectations.

The MPC stressed that monetary policy would remain tight until price stability was achieved, adding that its stance would support disinflation through demand, exchange rate and expectations channels.

Further rate decisions to depend on inflation outlook

The committee said future policy decisions would take into account actual and expected inflation, as well as its underlying trend, to ensure that monetary conditions remained consistent with the projected disinflation path and interim targets.

The size and timing of further policy adjustments will be determined on a meeting-by-meeting basis, with a focus on the inflation outlook, the bank said.

It added that monetary policy would be tightened if the inflation outlook deteriorated significantly and persistently, reiterating its vigilance against upside inflation risks.

Central bank maintains 5% medium-term inflation target

The CBRT said it would introduce additional macroprudential measures if unexpected developments emerged in credit and deposit markets that threatened the effectiveness of monetary policy transmission.

It also said liquidity conditions would remain under close monitoring and that liquidity management tools would continue to be used effectively.

The committee reiterated its commitment to creating the monetary and financial conditions necessary to achieve its medium-term inflation target of 5%.

It added that policy decisions would continue to follow a predictable, data-driven and transparent framework.

The summary of the MPC meeting is scheduled to be released within five working days. (ILKHA)