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On Thursday, Central Economics anticipates that the Central Bank of Turkey (CBT) will implement a 250 basis point reduction in the one-week repo rate, following a lower-than-expected Turkish inflation figure for February.
The reported inflation rate was 2.3% month-on-month, falling short of both Central Economics’ and the consensus forecast, which were 2.6% and 2.9% respectively. This decrease was a significant drop from January’s 5.0% month-on-month figure. Year-on-year inflation also eased to 39.05% from 42.1%.
The decline in the month-on-month inflation rate was partly attributed to reductions in healthcare co-payments, with healthcare prices dropping by 4.4%.
The reduction in inflation was not limited to healthcare, however; most major categories of the Consumer Price Index (CPI) basket saw inflation rates around 3% month-on-month or lower. Core inflation matched the overall figure at 2.3% month-on-month.
Central Economics has maintained the stance it adopted following the release of the January inflation data, which suggested the spike at the start of the year was an isolated incident.
Factors such as the increase in the minimum wage at the beginning of the year and the rise in demand during the fourth quarter of the previous year did not continue to exert strong inflationary pressures.
Based on the recent data, Central Economics’ outlook remains that policymakers will proceed with a substantial interest rate cut of 250 basis points, bringing the one-week repo rate down to 42.50%. Looking ahead, Central Economics expects the repo rate to settle at 32.00% by the end of the year.
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