Central Bank keeps policy rate stable at 9 percent

ANKARA

The Turkish Central Bank on Jan. 19 held its policy rate at 9 percent for s second month in its Monetary Policy Committee’s (MPC) first meeting of the year.

The bank has reduced interest rates by 500 basis points from August to November.

“Although recently released data point to a stronger economic activity than anticipated, recession concerns in developed economies as a result of ongoing geopolitical risks and interest rate hikes continue,” the bank said in a written statement after the MPC meeting.

“While the negative consequences of supply constraints in some sectors, particularly basic food, have been alleviated by the strategic solutions facilitated by Türkiye, the high level in producer and consumer inflation continues on an international scale. The effects of high global inflation on inflation expectations and international financial markets are closely monitored,” it added.

Indicators for the last quarter of the year show that a slowdown in growth due to the weakening foreign demand is compensated by the relatively strong course in domestic demand, the bank noted.

“While share of sustainable components of economic growth increases, the stronger than expected contribution of tourism revenues to the current account balance continues throughout the year,” read the statement.

“On the other hand, domestic consumption demand, high level of energy prices and the likelihood of a recession in main trade partners keep the risks on current account balance alive.”

The bank said it would continue to use all available instruments decisively until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved.

“Level and underlying trend of inflation have been improved with the support of the integrated policy approach implemented to strengthen sustainable price stability and financial stability,” said the bank.

“It is critically important that financial conditions remain supportive for the sustainability of structural gains in supply and investment capacity by preserving the growth momentum in industrial production and the positive trend in employment. Accordingly, the committee has decided to keep the policy rate unchanged.”

Türkiye’s annual inflation slowed sharply from 84.4 percent in November 2022 to 64.3 percent in December after peaking to 85.5 percent in October last year, data from the Turkish Statistical Institute (TÜİK) showed earlier this month.

The monthly increase in consumer prices also eased from 2.88 percent in November to 1.18 percent.

“We entered a period of marked decline in inflation since November and ended 2022 at a level below [the inflation] target in the Medium-Term Program,” Treasury and Finance Minister Nureddin Nebati said then.