Central Bank once again keeps interest rate on hold at 50 pct

ANKARA

As widely expected, the Turkish Central Bank has kept the key interest rate, the one-week repo auction rate, on hold for an eighth straight month at 50 percent.

While inflation expectations and price behavior tend to improve, they continue to pose risks to the disinflation process, the bank said in a statement released after the Monetary Policy Committee meeting on Nov. 21.

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 bank reiterated, adding that the committee remains highly attentive to inflation risks.

“Accordingly, the level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation,” it said.

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, according to the bank.

“Increased coordination of fiscal policy will also contribute significantly to this process. Consequently, the disinflation process will gain strength,” it said.

The bank vowed to use monetary policy tools effectively in case a significant and persistent deterioration in inflation is foreseen.

Indicators for the last quarter suggest that domestic demand continues to slow down, reaching disinflationary levels, the bank added.

“While core goods inflation remains low, signs for an improvement in services inflation have become more apparent.”

Annual inflation slowed from 49.4 percent in September to 48.58 percent in October.

Earlier this month, the Central Bank raised its year-end inflation forecast for 2024, 2025 and 2026.

Annual consumer inflation is projected to reach 44 percent this year, from the previous forecast of 38 percent, Governor Fatih Karahan said at a meeting on Nov. 8 to present the bank’s fourth and final inflation report of the year.

The year-end inflation forecast for 2025 was raised to 21 percent, up 7 percentage points from the previous report.

The bank expects inflation to decline to 12 percent in 2016.

“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,” the bank said in the statement.