(Bloomberg) — Turkey’s inflation rate fell more than expected last month, potentially making it easier for the central bank to cut interests rate again.
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Prices rose by an annual 44.4% in December, compared with 47.1% in November and lower than the 45.2% median estimate in a Bloomberg survey of analysts.
The month-on-month inflation rate, the central bank’s preferred gauge, was 1.03%, down from 2.24% in November and the lowest figure since May 2023, the country’s main statistics agency said on Friday. The average estimate in the Bloomberg survey was 1.60%.
Turkish stocks rose, with the Borsa Istanbul 100 Index gaining 0.9% as of 10:36 a.m. local time. The lira traded down 0.1% to 35.38 per dollar.
The inflation data followed the central bank cutting rates on Dec. 26 in its first such move in almost two years. It lowered the benchmark one-week repo rate by 250 basis points, more than markets expected, even as it maintained a hawkish stance by narrowing the difference between its lending and borrowing rates. It said it would remain cautious about future moves and signaled there was no guarantee it would continue to ease monetary policy at the same pace this year.
Still, many economists predict it will carry on reducing the main rate by 250 basis points at each of its next few Monetary Policy Committee meetings. The next one is on Jan. 23.
Friday’s data makes that even more likely, according to Onur Ilgen, head of treasury at MUFG Bank Turkey in Istanbul.
Turkey has suffered from one of the world’s highest inflation rates for years, caused in large part by President Recep Tayyip Erdogan championing ultra-loose monetary policy in a bid to boost growth. That changed in mid-2023, when the central bank, under a new leadership, started raising rates rapidly to prevent a balance-of-payments crisis and encourage the return of foreign investors who’d fled the country’s bond markets.
The tightening helped to slow inflation from over 75% in March, and led to billions of dollars of inflows last year from fixed-income traders.
Yet on Saturday Erdogan said that rates would “definitely” be reduced in 2025.
His comments could increase the pressure on the central bank to ease policy quickly. Many Turkish business leaders have complained that rates are too high and the economy entered a technical recession in the third quarter.
