ANKARA — Turkey's central bank on Thursday cut its policy interest rate for a second meeting in a row as the country's double-digit inflation continues to ease.

 

The bank had raised its key interest rate to 46 per cent in April after protests over the jailing of Istanbul's powerful opposition mayor.

 

The rate was lowered to 43 per cent in July.

 

The bank decided to reduce it again on Thursday to 40.5 per cent — a bigger cut than the two-per centage-point reduction expected by analysts.

 

Annual inflation eased further to 32.95 per cent in August, down from 33.52 per cent in July, official data showed last week, fuelling expectations of another rate cut.

 

"While growth exceeded projections in the second quarter, final domestic demand remained weak. Recent data suggest that demand conditions remain disinflationary," a bank statement said.

 

The statement said food and service prices were "keeping upward pressure on inflation".

 

"Inflation expectations, pricing behaviour, and global developments continue to pose risks to the disinflation process," it said, pledging to maintain a tight monetary policy stance "until price stability is achieved".

 

The bank signalled that it could raise rates again if needed.

 

"If the inflation outlook significantly deviates from the interim targets, the monetary policy stance will be tightened," it said.

 

Liam Peach, a senior emerging markets economist at London-based Capital Economics, said since August's inflation figures, the central bank had "a clearer focus on interim inflation targets".

 

"While we think monetary easing will continue.. the statement supports our view that real interest rates will remain high for a prolonged period," he wrote in a note.

 

"The central bank will probably stick with 250 basis point rate cuts over the rest of this year, before slowing towards 100-200 basis points over the course of 2026 (with the policy rate ending next year at 25 per cent)," he said, suggesting it would "leave real interest rates at around 5 per cent".