Central Bank holds key interest rate steady at 50 percent

Central Bank holds key interest rate steady at 50 percent

ANKARA
Central Bank holds key interest rate steady at 50 percent

As widely expected, Türkiye’s Central Bank has kept its policy rate — the one-week repo auction rate — on hold at 50 percent.

Considering the lagged effects of the monetary tightening, the Monetary Policy Committee decided to keep the policy rate unchanged but reiterated that it remains highly attentive to inflation risks, the bank said in a statement on April 25 following the rate-setting meeting.

The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range, it added.

Last month, in a surprise move, the bank increased the one-week repo auction rate by 500 basis points from a previous 45 percent. The bank has raised its key one-week repo rate by 4,150 basis points from 8.5 percent since last June.

Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen, the bank said on April 25.

“The decisiveness regarding tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish Lira and improvement in inflation expectations.”

Consequently, disinflation will be established in the second half of 2024, according to the bank.

The annual inflation quickened from 67.07 percent in February to 68.5 percent in March. The monthly inflation, however, slowed from 4.53 percent to 3.16 percent.

The monetary policy decisions in March have led to a significant tightening in financial conditions, the bank said in the statement, adding that the effects of monetary tightening on credit conditions and domestic demand are closely monitored.

In addition to the high level of and the stickiness in services inflation, inflation expectations, geopolitical risks, and food prices keep inflationary pressures alive, the bank warned, stressing that in March, despite an ongoing decline, the underlying trend of monthly inflation was higher than expected.

While imports of consumption goods and gold contribute to the improvement in the current account balance, other recent indicators imply that domestic demand remains resilient, according to the Central Bank.

The bank also said it continues to implement macroprudential policies in a way to preserve the functionality of the market mechanism and macro-financial stability.

“In this context, monetary transmission mechanism will continue to be supported in case of unanticipated developments in credit growth and deposit rates.”

Market liquidity will be closely monitored and sterilization tools will continue to be effectively used whenever needed, the statement added.

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