Central Bank holds key interest rate steady at 50 percent

ANKARA

In a widely expected move, the Central Bank has held its policy rate — the one-week repo auction rate — steady at 50 percent.

“Considering the lagged effects of the monetary tightening, the committee decided to keep the policy rate unchanged but reiterated that it remains highly attentive to inflation risks,” the bank said in a statement released after the Monetary Policy Committee meeting on May 23.

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 noted.

Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen, according to the bank.

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.

In March, the bank unexpectedly delivered a 500-basis point rate hike to 50 percent from the previous 45 percent. With that surprising move, the bank has raised its key one-week repo rate by 4,150 basis points from 8.5 percent since June 2023.

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, the bank said on May 23.

“Consequently, disinflation will be established in the second half of the year.”

Earlier this month, in its quarterly inflation report, the bank lifted its inflation forecast from a previous 36 percent to 38 percent for the end of 2024, while keeping inflation forecasts for 2025 and 2026 unchanged at 14 percent and 9 percent, respectively.

The annual inflation rate quickened from 68.5 percent in March to 69.8 percent in April.

Monetary policies are being implemented in a stable manner, Finance Minister Mehmet Şimşek said in a speech he delivered at the International Arab Banking Summit in Istanbul on May 23.

“Our [economic] program works thanks to a combination of sound policies and structural reforms. We are trying to make growth sustainable and more balanced,” Şimşek added.

Investors’ portfolio preferences will work in favor of the Turkish Lira and the real exchange rates will support disinflation, the minister said, noting that the Central Bank’s reserves are increasing.

“We need to refocus on the industrial transformation. One of the main pillars of our program is the structural transformation,” Şimşek added.