Turkey's August inflation rates show a decrease, preceding the crucial decision on interest rates

In a potential shift in monetary policy, the Central Bank of the Republic of Turkey (CBRT) may consider reducing interest rates to 35% by the end of 2025, according to unconfirmed sources. This announcement, if confirmed, could mark a significant move in the country's economic landscape.

The speculation comes as Turkey's inflation rate continues to trend downward. In August, inflation extended its decline for the 15th consecutive month, reaching 32.95%. Out of 143 categories tracked by the index, prices rose in 119, fell in 20, and remained unchanged in four. The steepest annual price increases were recorded in education, housing, and hotels, cafes, and restaurants.

However, the potential interest rate reduction may not come without challenges. On a monthly basis, housing, transport, and food and non-alcoholic beverages experienced increases. Clothing and footwear, on the other hand, registered a 5.82% monthly decline that offset part of the rise.

The CBRT will hold its next monetary policy meeting on Sept. 11, where the size of any potential policy steps will be reviewed with a cautious focus on the inflation outlook. During a business meeting on Tuesday, Central Bank Governor Fatih Karahan noted this approach.

The announcement of a potential interest rate reduction comes amidst a mixed economic picture in Turkey. The country's stock exchange, Borsa Istanbul, has seen volatility in recent days. Following a court decision that reignited fears of potential turmoil, Borsa Istanbul closed Tuesday's session down by 3.6%. The lowest point of Borsa Istanbul on Tuesday was 10,616, marking nearly a 6% loss. On Wednesday, the exchange opened in negative territory, with losses approaching 2%.

Despite the economic challenges, Turkey's better-than-expected second-quarter gross domestic product (GDP) results, released this week, have boosted expectations. The lower-than-anticipated inflation rate and the positive GDP growth have contributed to a more optimistic outlook for the Turkish economy.

Market representatives, according to a Survey of Market Participants conducted by CBRT, expect another 300-basis-point cut, bringing the policy rate down to 40%. However, it's important to note that the name of the Turkish central bank governor who mentioned the possibility of the Central Bank of Turkey lowering interest rates by up to 35% by the end of 2025 is not explicitly stated in the available search results.

In addition to the interest rate and inflation developments, producer prices also accelerated in August, with the index rising 2.48% every month and the annual producer inflation rate increasing to 25.16%.

As the situation unfolds, investors and analysts will be closely watching the CBRT's decision-making process and the impact on the Turkish economy. The potential interest rate reduction, if implemented, could signal a shift towards a more growth-oriented monetary policy in Turkey.

Turkey's August inflation rates show a decrease, preceding the crucial decision on interest rates