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Turkish inflation dipped below 40 per cent for the first time in 20 months as higher interest rates curbed consumption, setting the stage for the central bank to continue cutting borrowing costs when it meets this week.
Annual consumer price inflation slowed to 39.1 per cent in February, data from the Turkish Statistical Institute (TÜİK) released on Monday showed, down from 42.12 in January and in line with economists’ forecasts.
This was the ninth successive monthly fall and the lowest level since June 2023. A decline in clothing prices and healthcare costs were the main factors in the slower inflation rate, the data showed.
Turkey’s benchmark one-week repo rate is 45 per cent, and the central bank is expected to reduce it by 250 basis points when its monetary policy committee meets on Thursday, according to a Bloomberg survey.
The bank has already cut the policy rate by 5 percentage points since December, saying that weaker consumer demand and expectations that prices would eventually come down had encouraged policymakers.
The bank began sharply raising rates in June 2023 after Recep Tayyip Erdoğan, Turkey’s president, won re-election and abandoned his policy of ultra-low borrowing costs to spur economic growth. Inflation peaked at 86 per cent in October 2022.
But the long-running cost of living crisis is still causing pain in Turkish households, especially those earning the minimum wage, which is a net 22,105 lira ($606) a month.
About 60 per cent of workers and pensioners in Turkey earn the minimum wage or within 15 per cent of it, according to Uğur Gürses, an economist and former central banker.
“Very high inflation has eroded the disposable income of households [and hit] consumption. It will take more time for people who are still saying ‘our livelihood has not improved,’” Gürses said.
The inflation data follows the release of figures that showed the economy expanded by a faster-than-expected 3.2 per cent in 2024. A rise of 1.7 per cent in GDP in the fourth quarter brought Turkey out of technical recession after contracting in the previous two quarters, according to TÜİK.
Mehmet Şimşek, the finance minister who was brought back into Erdoğan’s cabinet following the election, on Friday credited the “predictability” of the government’s policies and falling inflation for the growth uptick, saying investor confidence would continue to boost economic activity.
Gürses said the moderate growth and downward inflation trend showed that the central bank’s reach had “strengthened” and that it would “probably” lower rates by 2.5 percentage points this week and again next month.
