Central Bank set to meet for rate decision this week

ISTANBUL

Türkiye’s Central Bank will meet later this week to decide about its policy rate, the one-week repo auction rate.

Most economists expect the bank to keep its key rate steady at 50 percent when members of the Monetary Policy Committee (MPC) meet on June 27.

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.

Since March, the bank has not taken any action on the interest rates.

“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 during the latest MPC meeting, which was held on May 23.

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 added.

Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen, it said.

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 adjusted its inflation forecast from the previous 36 percent to 38 percent for the end of 2024. On the other hand, it kept its inflation forecasts for 2025 and 2026 unchanged at 14 percent and 9 percent, respectively.

The market is beginning to believe that the government’s economic program will bring inflation down, Finance Minister Mehmet Şimşek said last week at an event in London organized by the Chatham House, a think tank.

“Inflation may be around low 40s or high 30s later this year, and next year it might be around mid-10s and then will decline to single digits… “We are using all tools to bring inflation under control,” said the minister, who met with international investors in the U.K.’s capital.

The Central Bank is confident that disinflation will be established in the second half of the year.

In his recent remarks President Recep Tayyip Erdoğan said that the inflation outlook will further improve in the fourth quarter of this year

“We are presently standing firm [on the fight with inflation]. We will wait for the final quarter…All boils down to interest rates. With the steps to be taken on interest rates, we will bring inflation to more favorable levels,” Erdoğan said.