Turkiye’s Central Bank Maintains Interest Rate at 50% Despite Persistent Inflationary Pressures

The Central Bank of the Republic of Turkiye (CBRT) has announced its latest interest rate decision, opting to keep the one-week repo auction rate unchanged at 50%.

The Monetary Policy Committee, led by Yaşar Fatih Karahan, convened to evaluate the current economic landscape. The committee’s decision reflects a careful consideration of various economic indicators and underlying inflation trends.

The official statement from the CBRT highlighted the following points:

“The underlying trend of inflation has recorded a limited weakening.”

In April, the main trend of monthly inflation showed a slight decrease. Recent data suggests a slowdown in domestic demand compared to the first quarter. However, the increase in consumer goods imports in April has limited the improvement in the current account balance. Persistent high inflation in services, inflation expectations, geopolitical risks, and rising food prices continue to exert inflationary pressures. The Board is closely monitoring the alignment of inflation expectations and pricing behavior with forecasts.

The Central Bank’s decision underscores the ongoing challenges in balancing economic growth with inflation control, maintaining a cautious stance in its monetary policy approach.

The impact of monetary tightening on loans and domestic demand remains under close scrutiny. The Board has elected to keep the policy rate unchanged, acknowledging the delayed effects of prior tightening measures. However, it emphasized a vigilant approach towards inflationary pressures. The current stringent monetary policy will persist until there is a substantial and lasting reduction in the core trend of monthly inflation, and inflation expectations align with the forecasted range. Should a significant and enduring uptick in inflation be foreseen, the policy stance will be further tightened.

Sustaining a Determined Monetary Policy Stance

The Board is committed to curbing the core trend of monthly inflation through several mechanisms: balancing domestic demand, ensuring real appreciation of the Turkish lira, and improving inflation expectations. This strategy aims to establish disinflation by the year’s second half.

Excess Liquidity Management

To streamline the macroprudential framework and enhance market functionality, the practice of establishing securities has been discontinued. In light of recent credit growth and deposit trends, additional measures will be implemented to maintain macro-financial stability and support the monetary transmission mechanism. Excess liquidity from domestic and foreign demand for Turkish lira assets will be absorbed through these additional measures.

Medium-Term Inflation Target

The Board is dedicated to setting policy decisions that reduce the main inflation trend and create monetary and financial conditions conducive to achieving a 5% inflation target in the medium term, considering the lagged effects of monetary tightening.

Commitment to Price Stability

Inflation and its core indicators will be closely monitored. The Board will steadfastly utilize all available tools to ensure price stability, making decisions within a predictable, data-driven, and transparent framework.

Source: Trthaber / Prepared by Irem Yildiz

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