The Monetary Policy Committee (MPC) of the Turkish Central Bank has announced a reduction in the policy rate from 50 percent to 47.5 percent.

This decision was made during their latest meeting, where they also adjusted the operational framework of monetary policy.

The Central Bank has set its overnight borrowing and lending rates at 150 basis points below and above the one-week repo auction rate, respectively.

In its statement, the bank noted that the underlying trend of inflation was flat in November, with leading indicators suggesting a decline in December. Domestic demand, which has been at disinflationary levels, continues to slow, while core goods inflation remains low, and there's a noticeable improvement in services inflation. Unprocessed food inflation seems to have moderated in December following a higher trend in the prior two months.

The bank emphasized the effectiveness of the tight monetary stance in reducing monthly inflation trends, supporting the disinflation process through mechanisms like the real appreciation of the Turkish lira and improved inflation expectations. The statement highlighted the role of fiscal policy coordination in aiding this process.

Looking forward, the Central Bank committed to maintaining a tight monetary policy until there is a significant and sustained decline in the underlying inflation trend and inflation expectations align with the forecasted range. The policy rate will be adjusted to maintain the necessary tightness to meet the disinflation path, considering both realized and expected inflation rates.

The Committee stressed that decisions would be made prudently on a meeting-by-meeting basis, focusing on inflation outlook. They also assured that monetary policy tools would be used effectively should there be signs of significant and persistent inflation deterioration.

In response to potential disruptions in credit and deposit markets, the bank plans to support the monetary transmission mechanism through additional macroprudential measures. Liquidity conditions will be monitored closely, with sterilization tools employed as needed.

The Central Bank reiterated its commitment to achieving the medium-term inflation target of 5 percent, stating that they will monitor inflation indicators and trends closely, using all available tools to maintain price stability within a predictable, data-driven, and transparent framework. (ILKHA)