Central Bank keeps policy rate steady at 50 percent

ANKARA

As widely expected, the Central Bank has kept its main policy rate, the one-week repo auction rate, unchanged at 50 percent for a fifth straight month.

“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,” read the statement the bank released after the Monetary Policy Committee meeting on Aug. 20.

Since June last year, the bank raised its policy rate by 4,150 basis points to 50 percent, with the last hike taking place in March.

A survey of economists showed this week that the policy rate is expected to be slashed to 46.5 percent at 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 Aug. 20.

Taking into account the lagged effects of monetary tightening, the committee will make its policy decisions so as to create the monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5 percent inflation target in the medium term, it reiterated.

The underlying trend of monthly inflation rose slightly in July but remained below its second-quarter average, the bank noted.

Annual inflation slowed to a nine-month low of 61.98 percent in July, with consumer prices rising 3.2 percent month-on-month.

Indicators for the third quarter suggest that domestic demand continues to slow down with a diminishing inflationary impact, according to the statement.

The bank emphasized that the alignment of inflation expectations and pricing behavior with projections has gained relative importance for the disinflation process.

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.

Consequently, the disinflation process will gain strength, the bank said, stressing that it remains highly attentive to inflation risks.

The bank also said that in case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism will be supported via additional macroprudential measures.

“Liquidity conditions are assessed with respect to prospective developments and are closely monitored. Sterilization tools will continue to be implemented effectively,” it noted.