Central Bank meets to decide on key interest rate

ISTANBUL

The Central Bank’s Monetary Policy Committee (MPC) is set to convene for the last rate-setting meeting of 2023 on Dec. 21.

The bank is widely expected to increase its main policy rate - the one-week repo auction rate - from the current 40 percent to 42.5 percent.

Since Hafize Gaye Erkan took the helm of the Central Bank in June after the May elections, the bank has raised the key interest rate by a massive 3,150 basis points as part of its efforts to bring inflation under control.

The statement to be released after the MPC meeting will provide clues as to which direction the monetary policy will take in the months to come.

The bank said last month, when it delivered a larger-than-expected 500 basis points rate hike, that the current level of monetary tightness is significantly close to the level required to establish the disinflation course.

The pace of monetary tightening will slow down, and the tightening cycle will be completed in a short period of time, the bank said at the time, without providing a timeframe.

The existing level of domestic demand, the stickiness in services inflation, and geopolitical risks keep inflation pressures alive, the bank warned, noting that, however, inflation expectations and pricing behavior started to show signs of improvement.

The bank’s regular survey of market participants released earlier this month showed that the inflation expectations for 2024 declined from 43.9 percent to 41.2 percent.

The annual inflation rate ticked up from 61.36 percent in October to 61.98 percent in November. But the monthly inflation eased from 3.43 percent to 3.28 percent.

In a recent interview with daily Hürriyet, Erkan said the monetary policy works, reiterating that inflation will decline to single digits in 2026.

After the bank’s rate decision, Finance Minister Mehmet Şimşek and Erkan will travel to New York to meet with foreign investors.

As part of the “Investor Day” event to be held on Jan. 11, Erkan will make a presentation to foreign investors on monetary policy and inflation.

Şimşek will also deliver a speech on fiscal policy and the financing outlook.

Moody’s said in a report released on Dec. 19 that it could upgrade Türkiye’s credit outlook to positive if the tight monetary stance is maintained and wage agreements are compatible with the Central Bank’s objective of significantly reducing inflation.