CBRT reveals interest rate at 50% and emphasizes cautious monetary policy as domestic demand slows and inflation risks remain elevated.
CBRT Maintains Policy Rate at 50%
The Central Bank of the Republic of Turkiye (CBRT) has decided to keep the policy interest rate, the one-week repo rate, unchanged at 50%, aligning with market expectations. The decision was made during the Monetary Policy Committee meeting chaired by CBRT Governor Fatih Karahan.
Inflation Trends and Economic Outlook
In its announcement, the CBRT provided an in-depth analysis of current inflation trends and the broader economic landscape:
- July Inflation: The main trend in monthly inflation showed a limited increase compared to the previous month but remained below the second-quarter average.
- Domestic Demand: Indicators for the third quarter suggest a continued slowdown in domestic demand, reducing its inflationary impact.
- Service vs. Goods Inflation: While goods inflation is declining, improvements in service inflation are expected to lag.
Persistent Inflationary Risks
The CBRT highlighted several factors that continue to pose inflationary risks:
- Service Inflation: The high and sticky nature of service inflation remains a challenge.
- Inflation Expectations: Elevated inflation expectations, coupled with geopolitical developments, keep inflationary risks alive.
- Price Stability: The importance of aligning inflation expectations and pricing behavior with projections was emphasized as crucial for the disinflation process.
Monetary Policy Stance
The CBRT reaffirmed its commitment to a tight monetary policy stance, focusing on several key areas:
- Domestic Demand Balance: The tightening policy aims to balance domestic demand, contribute to the real appreciation of the Turkish lira, and improve inflation expectations.
- Monitoring Inflation Trends: Indicators related to inflation and its underlying trends will be closely monitored.
- Policy Adjustments: The CBRT stands ready to tighten its monetary stance further if significant and lasting deterioration in inflation is observed.
Liquidity and Financial Stability
In the context of financial stability, the CBRT emphasized:
- Sterilization Tools: Active use of sterilization tools will continue to manage liquidity conditions.
- Macroprudential Measures: If unforeseen developments occur in the credit and deposit markets, additional macroprudential steps will be taken to support the monetary transmission mechanism.
- Transparency and Data-Driven Decisions: Future policy decisions will be made within a predictable, data-driven, and transparent framework.
Conclusion: A Cautious Approach to Inflation
The CBRT’s decision to hold the interest rate steady reflects its cautious approach in the face of persistent inflation risks. By maintaining a tight monetary policy stance, the CBRT aims to steer inflation toward the medium-term target of 5%, while ensuring that financial and monetary conditions remain conducive to long-term stability.
Source: Trthaber / Prepared by Irem Yildiz