Turkey's central bank held interest rates at 9% for a second straight month on Thursday, and analysts said it could return to easing in the run-up to May elections given inflation is expected to drift lower from 64% last month.
The central bank (CBRT) said the inflation level and trend have improved due to a broad state strategy of boosting lira use. Relatively stronger domestic demand offset the recent economic slowdown due to weaker foreign demand, it added.
President Tayyip Erdogan faces tight elections in four months in which the cost-of-living crisis is a top concern. He could soon urge more rate cuts as part of his unorthodox stance that policy easing also lowers prices, analysts said.
A previous easing cycle in 2021 sparked a currency crash that stoked the wave of inflation that peaked at a 24-year high above 85% in October. It came down to 64.3% in December, largely due to a favourable base effect.
Haluk Burumcekci, founder of Burumcekci Consulting, said changes in the bank's policy statement compared with previous months "shows that the door has been reopened for additional interest rate cuts."
The central bank expects inflation to fall to 22.3% by the end of 2023, even as the median estimate in a Reuters poll stood at 42.5%.
"It is critically important that financial conditions remain supportive" of the momentum in industrial production, the bank's policy committee said.
