Turkish cenbank returns to easing with big 300-point rate cut

Turkey's central bank cut interest rates by 300 basis points to 43% on Thursday, more than expected, resuming an easing cycle that had been disrupted by political turmoil earlier this year, as markets have since calmed and disinflation continued.

Going forward, the central bank said it would determine the "step size" of future monetary easing "prudently" and on a meeting-to-meeting basis. It also lowered the upper band of its rate corridor to 46% from 49%.

The lira currency remained stable after the decision at 40.48 to the dollar.

All but one of 17 economists in a Reuters poll forecast it would cut its benchmark one-week repo rate (TRINT=ECI), with predictions ranging from 42.50% to 44.50% among those expecting a cut.

The bank hiked the policy rate to 46% from 42.5% in April, reversing an easing cycle that had begun in December, following market volatility over the arrest in March of Istanbul Mayor Ekrem Imamoglu, who is President Tayyip Erdogan's main rival.

The bank said the underlying inflation trend remained flat in June and it anticipated a "temporary rise" in monthly inflation this month due to one-off factors.

"Recent data indicate that the disinflationary impact of demand conditions has strengthened," the policy committee said.

It will set policy "taking into account realized and expected inflation, and its underlying trend in a way to ensure the tightness required by the projected disinflation path," it added.

"The step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook".

Annual inflation dipped to 35.05% in June, having fallen consistently from a peak of 75% in May last year. In its quarterly inflation report in May, the central bank held its year-end inflation forecast steady at 24%.

Most economists expect easing to continue in the months ahead, with the policy rate falling to 36% by the end of 2025, according to the Reuters poll.

The monetary easing will likely continue through at least the third quarter of 2026, an earlier Reuters poll showed.