Central Bank keeps key interest rate unchanged at 50 percent

ANKARA

As widely expected, the Central Bank has opted to keep the policy rate, the one-week repo auction rate, stable 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 issued after the Monetary Policy Committee meeting on June 27.

The bank reiterated that 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 annual inflation rate accelerated from 69.8 percent in April to 75.45 percent in May with consumer prices rising 3.37 percent month-on-month, according to the latest official data.

In May, the Central Bank lifted its inflation forecast from the previous 36 percent to 38 percent for the end of 2024.

Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen, the bank said on June 27.

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

The bank reiterated its view that disinflation will be established in the second half of the year.

In case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism will be supported via additional macroprudential measures, it said.

Liquidity conditions are closely monitored, and sterilization will be implemented effectively by also enriching the toolset whenever needed, the bank stressed.

“Indicators of inflation and the underlying trend of inflation will be closely monitored, and the Committee will decisively use all the tools at its disposal in line with its main objective of price stability,” it said.

Recent indicators confirm that domestic demand, albeit still at inflationary levels, continues to slow down, 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,” said the bank, adding that the decline in the underlying trend of monthly inflation registered a temporary pause in May.

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 raised the one-week repo rate by 4,150 basis points from 8.5 percent since June 2023.