Central Bank keeps policy rate unchanged as expected

ANKARA

As widely expected, Türkiye’s Central Bank kept its policy rate unchanged at 45 percent after eight straight months of rate hikes.

Since June 2023, the bank increased the one-week repo auction rate by a cumulative 3,650 basis points. Last month, it lifted the rate by 250 basis points to 45 percent and said that the monetary tightness required to establish the disinflation course was achieved.

“The current level of the policy rate will be maintained until there is a significant and sustained decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range,” the Central Bank said on Feb. 22 in a statement released after the Monetary Policy Committee meeting.

The MPC met for the first time after Fatih Karahan took the helm of the Central Bank earlier this month.

Monetary policy stance will be tightened in case a significant and persistent deterioration in the inflation outlook is anticipated, the bank added.

The committee will continue to implement macroprudential policies in a way to preserve the functionality of the market mechanism and macro-financial stability, the statement said, adding that the monetary transmission mechanism will be supported in case of unanticipated developments in credit growth and deposit rates.

“In order to support the monetary tightness, developments in market liquidity will be closely monitored and sterilization tools will be effectively used whenever needed.”

Taking into account the lagged effects of monetary tightening, the committee will determine its policy decisions in a way that will create 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, according to the statement.

The bank said it will closely monitor the alignment of inflation expectations and pricing behavior with projections and the impact of wage increases on inflation.

The determination in tight monetary stance will continue to contribute to the Turkish Lira’s real appreciation process, which is a key element of disinflation, according to the bank.

Due to month-specific and time-dependent price and wage adjustments, the underlying trend of monthly inflation rose in January in line with the inflation projections, the bank said but noted that recent indicators suggest that domestic demand continues to moderate.

The annual inflation rate accelerated from 64.77 percent in December 2023 to 64.86 percent.

In its quarterly inflation report released this month, the bank kept its inflation forecasts for 2024 and 2025 unchanged from the previous at 36 percent and 14 percent.