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Turkey’s central bank cut its key interest rate for the first time in nearly two years, pointing to sluggish consumer demand and currency strength for a larger-than-expected cut of 250 percent. base points.

Lawmakers cut the benchmark rate to 47.5 percent from 50 percent in the first reduction since February 2023, when President Recep Tayyip Erdoğan pushed for low borrowing costs to stimulate economic growth during his re-election campaign. – election. The cut was larger than the median forecast of a decline of 48.25 percent, according to economists polled by Bloomberg.

Annual consumer price inflation fell to 47 percent in November, from a peak of nearly 86 percent in October 2022. The government’s decision earlier this week to raise the minimum wage by 30 percent only next year may have also encouraged the central bank to move to ease rates, analysts said.

The Central Bank of Turkey said it saw signs of inflation easing in December, but noted that it has not abandoned its tight monetary policy.

“The . . . stance will remain until a significant reduction in the underlying trend of monthly inflation is observed”, it said on Thursday, the increase in rates will be determined on a meeting-by-meeting basis.

The bank said on Wednesday it would meet eight times by 2025 to set rates, rather than the usual 12 meetings.

“The central bank has signaled that they may choose to slow down or stop future meetings,” said Hakan Kara, former chief economist at Turkey’s central bank, noting that the trend aka aka aka aka aka aka aka aka aka aka a trend It’s a trend over time. for reduction.

Erdoğan said in a post on X on Tuesday that the minimum wage would be a net 22,104 liras ($627) per month, a move that investors welcomed as a sign of his commitment to slowing consumer demand. and inflation. About one-third of Turkish workers earn the minimum wage, and the annual change serves as a guide for other wage increases.

But labor groups blasted the new pay rate, with the head of Türk-İş, a union with 1.75 million members, calling it “unacceptable.”

Consumer prices rose by 0.07 percent for every percentage point increase in Turkey’s minimum wage, calculated by the central bank last year. Türk-İş said that clearing the hunger threshold for a family of four now requires a monthly salary of 20,562 lira.

Erdoğan has dramatically increased wages to win over voters ahead of elections in 2023 and 2024. But he has recently shifted to more market-friendly policies to attract foreign investors who have been deterred by years of low interest rates when the country experienced severe inflation. Turkey started raising rates in June 2023.

The government must fulfill its promises to cut spending and raise tax revenue to bring down inflation, which the central bank predicts will reach 14 percent by the end of next year, analysts said.

“The central bank largely plays its part,” Kara said. “Achieving the desired inflation targets will only be possible with substantial fiscal and institutional adjustments.”