MNI CBRT Review - December 2024: Easing Starts with 250bp Cut
Executive summary
- The CBRT started its easing cycle with a 250bp cut to the one-week repo rate, taking it to 47.5%.
- In the accompanying policy statement, the central bank transitioned to data dependent guidance, noting that decisions will be made “prudently on a meeting-by-meeting basis” with a particular focus on the inflation outlook.
- The Bank also narrowed the interest rate corridor to +/-150bps around the policy rate, down from the +/-300bps set in March.
See the full review, with a summary of sell-side analyst views, here:
Given the shift in guidance in the November policy statement, a rate reduction had been anticipated this month. The central bank noted then that "the level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation," implying that rates can remain restrictive even if they are reduced. That line of guidance was retained in this month’s statement, suggesting that a further retreat in inflation will be conductive to additional cuts.
The central bank’s more dovish assessment of inflation appears to have been the key driver behind its decision to cut rates this week.While inflation expectations continue to pose risks to the disinflation process, the Bank noted that indicators for the last quarter suggest that domestic demand, already at disinflationary levels, continues to slow.Meanwhile, the improvement in services inflation has become “more apparent” while core goods inflation “remains low”. Inflation data for December is due next week (Jan 03).