Turkey Cuts Interest Rates Again as Inflation Cools

Turkey’s central bank lowered its benchmark interest rate by 2.5 percentage points to 42.5% on Thursday, marking its third consecutive cut. 

The move follows a decline in annual inflation, which fell to 39.1% in February from 42.1% the previous month, its lowest level in nearly two years. However, independent economists have questioned official figures, suggesting that real inflation may be much higher.

The rate cut is part of Turkey’s ongoing effort to balance growth with inflation control after years of economic volatility. High inflation has been fueled by rising energy prices, global economic shocks, and past policies under President Recep Tayyip Erdoğan, who has long argued that high interest rates drive inflation, a stance that contradicts conventional economic thinking. 

In 2023, Erdoğan appointed a new economic team, signaling a shift toward more traditional monetary policy. The team initially raised rates aggressively, pushing them to 50% before pausing and now gradually reversing course.

What Does This Mean for Me?

Markets remain cautious as the central bank indicated it would closely monitor inflation trends and make further adjustments if needed. Investors are weighing the impact of continued rate cuts on Turkey’s currency and financial stability. 

The lira has already lost over 30% of its value against the US dollar over the past year, and easing monetary policy could add further pressure. Meanwhile, analysts warn that if inflationary pressures resurface, the bank may be forced to rethink its strategy. With inflation still far from pre-crisis levels, Turkey’s economic outlook remains uncertain.