Central Bank holds key rate steady at 50 percent

ANKARA

As widely expected, the Central Bank has kept the policy rate, the one-week repo auction rate, unchanged at 50 percent.

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, the bank said in a statement released after the Monetary Policy Committee meeting on July 23.

“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,” it added.

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

As part of its effort to bring rampant inflation under control, the Central Bank hiked the key interest rate from 8.5 percent to 50 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 July 23.

“Consequently, the disinflation process will gain strength.”

Annual inflation slowed from 75.45 percent in May to 71.6 percent in June, with consumer prices rising 1.64 percent month-on-month.

The Central Bank forecasts a year-end inflation rate of 38 percent.

Leading indicators suggest that monthly inflation will rise temporarily in July due to adjustments in administered prices and taxes as well as supply-side factors in unprocessed food prices, which are relatively beyond the control of monetary policy, the bank said in the statement.

However, the rise in the underlying inflation is expected to be relatively limited, according to the bank.

Recent indicators confirm that domestic demand, albeit still at inflationary levels, continues to slow down, the bank added.

The monetary authority, however, warned that 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 committee closely monitors the alignment of inflation expectations and pricing behavior with projections, it said.

A Central Bank survey this week showed that inflation expectations continue to improve.

Inflation expectations for the end of 2024 declined from 43.52 percent in June to 42.95 percent in July.