The Central Bank of the Republic of Turkey (CBRT) has lowered its main policy interest rate, signaling a cautious move amid a gradual decline in inflation and stronger-than-expected economic growth.

The Monetary Policy Committee announced on Thursday that it has reduced the key one-week repo auction rate from 39.5% to 38.0%, a cut of 150 basis points. The bank simultaneously lowered its overnight lending and borrowing rates, adjusting its interest rate corridor. The overnight lending rate was cut from 42.5% to 41%, while the overnight borrowing rate was reduced from 38% to 36.5%.

The Committee cited recent economic data as a rationale for the move. It noted that consumer inflation in November was lower than forecast, primarily driven by an unexpected decline in food prices. Following a rise in September, the underlying trend of inflation showed a slight moderation in October and November.

However, the bank issued a cautionary note. "While showing signs of improvement, inflation expectations and pricing behavior continue to pose risks to the disinflation process," the statement read.

On the economic front, quarterly Gross Domestic Product (GDP) growth for the third quarter exceeded projections. Leading indicators for the final quarter of the year suggest that domestic demand conditions continue to support the broader disinflationary trend.

Despite the rate cut, the Central Bank strongly reaffirmed its commitment to a restrictive policy. It emphasized that "the tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process."

The Committee stated that future policy decisions would be data-dependent and focused on ensuring the monetary tightness required to stay on a projected disinflation path toward the bank's medium-term target of 5%. It explicitly warned that the policy stance "will be tightened in case of a significant deviation in the inflation outlook."

The bank also outlined contingency plans to support its policy. It pledged to use additional macroprudential measures if needed to bolster the monetary transmission mechanism, particularly in case of unforeseen developments in credit and deposit markets. Liquidity conditions will continue to be monitored closely, with management tools employed effectively.

The Committee concluded by reiterating its commitment to a "predictable, data-driven and transparent framework" for all future policy decisions.

A detailed summary of the Monetary Policy Committee Meeting will be published within the next five working days. (ILKHA)