by Burak Akinci

ANKARA, Dec. 26 (Xinhua) -- Türkiye's central bank on Thursday cut its benchmark interest rate by 250 basis points (bps) to 47.5 percent, marking its first rate cut in nearly two years.

The bank attributed the move to slowing inflation. Its Monetary Policy Committee said in a statement that the overall inflation trend was "flat" in November and is likely to decline in December.

"Indicators for the last quarter suggest that domestic demand, standing at disinflationary levels, continues to slow down," the statement added.

The end of the central bank's freeze on its policy interest rate has elicited mixed reactions from experts. While some acknowledged the rate cut, others viewed it as premature in light of the persistent inflation.

"A rate cut was expected. The central bank aligned it with the upper bound of general expectations with a rate cut of 250 bps. Further cuts may be forthcoming in the coming months," Senol Babuscu, a professor of finance from Ankara's Baskent University, told Xinhua.

The bank "made a very reasonable and balanced start in the current conditions," Hakan Kara, a former chief economist at the central bank and a scholar at Ankara's Bilkent University, said on social media platform X.

Türkiye has been contending with rampant inflation in recent years, which led the central bank to raise its policy rate by a total of 4,150 bps since mid-2023.

With a slew of disinflation measures, Türkiye managed to reduce the year-on-year inflation from over 75 percent in May to 47.09 percent in November. However, this figure is still higher than expected.

Mustafa Sonmez, an Istanbul-based independent economist, said the country's core inflation remains too high to start an easing cycle. "There is a lack of confidence among citizens in disinflation policies," he argued.

Atilla Yesilada, another economist from Istanbul, believes the central bank implemented a rate cut to appease investors and the markets. "It won't affect the economy other than providing limited relief for businesses complaining of high borrowing costs."

Mahmut Asmali, chairman of the country's Independent Industrialists and Businessmen Association, said previously that a rate cut is a "shared expectation" by his community in the face of high borrowing costs.

In an interview with the semi-official Anadolu Agency on Monday, Asmali urged policymakers to start an easing cycle, citing concerns over the high cost of doing business in the country.

The central bank's rate cut followed the government's announcement of a 30-percent increase in the minimum wage for 2025 on Tuesday, which would affect approximately 9 million workers.

However, labor unions are not satisfied with the increase, deeming it significantly below their demand of at least 50 percent.

Holding a different opinion, some experts believe Thursday's rate cut was too early, given that citizens are still grappling with the exceptionally high cost of living.

"Disinflation is not achieved by reducing the purchasing power of the people, but by encouraging them to save instead of spend," Emre Alkin, a professor of economy from Istanbul's Topkapi University, said on his blog. Enditem

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