Turkey's Central Bank may signal rate cut, former chief economist says

Turkey's Central Bank may be preparing to lower interest rates, according to an analysis by former chief economist Hakan Kara. Kara, who previously led the CBRT's economics department, noted that the current effective policy rate stands at 40%, slightly above the official rate of 37%.

Kara highlighted the bank's recent decision to resume one-week repo auctions after a pause of approximately six months. He interprets this move as a potential signal that the CBRT is looking to reduce its benchmark interest rate. This shift in liquidity management could indicate a move towards easing monetary policy.

In a social media post, Kara suggested that the CBRT has signaled an intention to lower the effective rate, which has been held at 40% since the start of the conflict. He believes that, depending on market conditions and foreign exchange demand, the rates could be gradually reduced to 37%.

The timing of any official rate reduction, Kara explained, will likely depend on developments in domestic demand and the country's foreign exchange reserves. He indicated that an official rate cut could potentially begin as early as October, contingent on these economic factors.

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The Central Bank has signaled an intention to lower the effective rate, which has been held at 40% since the start of the conflict. The official policy rate is 37%. This means there is a plan to gradually decrease to 37% depending on the foreign exchange demand in the market. An official rate cut could start in October, depending on domestic demand and reserve status.