Central Bank keeps interest rate stable

ANKARA

In a widely expected move, the Central Bank decided to keep its policy rate, the one-week repo rate, unchanged at 14 percent.

For the last time, the bank cut the key rate by 100 basis points from 15 percent in December last year.

In a statement released after the Monetary Policy Committee (MPC) meeting on May 26, the bank said it expects the disinflation process to start on the back of strengthened measures for sustainable price and financial stability along with the decline in inflation owing to the base effect and the resolution of the ongoing regional conflict.

“Accordingly, the committee has decided to keep the policy rate unchanged.”

Increase in inflation is driven by rising energy costs resulting from geopolitical developments, temporary effects of pricing formations that are not supported by economic fundamentals and strong negative supply shocks caused by the rise in global energy, food and agricultural commodity prices, the bank said.

The annual consumer price inflation accelerated from 61.1 percent in March to 69.97 percent in April.

“To create an institutional basis for sustainable price stability, the comprehensive review of the policy framework continues with the aim of encouraging permanent and strengthened liraization in all policy tools of the Central Bank.”

The bank added that the collateral and liquidity policy actions, of which the review process is finalized, will be implemented.

The bank reiterated that it will continue to use all available instruments decisively within the framework of liraization strategy until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved in pursuit of the primary objective of price stability.

‘Economic activity strong’

The bank said that level of capacity utilization and other leading indicators show that domestic economic activity remains strong, with the help of more robust external demand even some regional differences emerge.

It, however, stressed that while the share of sustainable components of economic growth increases, risks to current account balance due to energy prices continue.

“The credit growth, including the long-term investment loans and targeted usage of accessed funds for real economic activity, is important for financial stability. In this context, the committee will decisively continue to implement the strengthened macroprudential policy set by taking additional measures.”