The Central Bank of the Republic of Turkey (CBRT) announced its interest rate decision.
The CBRT left the policy rate unchanged at 50%. Thus, the Bank of Japan left the policy rate unchanged for the third consecutive meeting.
Market expectations were that interest rates would be kept constant, but it was estimated that some measures may be taken in light of fluctuations in deposit and overnight interest rates.
The Monetary Policy Committee (MPC) said liquidity developments were being closely monitored and stressed that sterilization tools would be diversified if necessary.
The CBRT said the monthly trend of weakening inflation was interrupted, noting that services inflation, expectations, geopolitical risks and food prices were keeping inflationary pressures up.
The main trend in monthly inflation is declining, with disinflation set to become established in the second half of the year, the statement said.
In a surprise decision in March, the central bank raised its benchmark interest rate from 45% to 50%.
Inflation weakness has been eliminated
The CBRT statement is as follows:
The weakening monthly inflation trend was briefly interrupted in May. Recent indicators confirm that domestic demand is slowing, although inflation remains at levels. Inflationary pressures persist due to services inflation, inflation expectations, geopolitical risks, and persistently high and sticky food prices. The Board is closely monitoring whether inflation expectations and pricing actions are in line with expectations.
Emphasis on tight monetary policy
The impact of monetary tightening on lending and domestic demand is being closely monitored. The Governing Council decided to keep the policy rate unchanged taking into account the delayed effects of monetary tightening, but reiterated its cautious stance on upside risks to inflation. The tightening stance of monetary policy will be maintained until the underlying trend in monthly inflation declines significantly and persistently and inflation expectations converge to the projected forecast range. If a significant and persistent deterioration in inflation is projected, the monetary policy stance will be tightened. Resolute stance in monetary policy. The underlying trend in monthly inflation will decline through balanced domestic demand, real appreciation of the Turkish lira and improving inflation expectations, and disinflation will be established in the second half of the year.
Diversify your sterilization tools as needed
In case of unexpected developments in credit and deposit markets, the monetary transmission mechanism will be supported by additional macroprudential measures. Liquidity developments are being closely monitored. Sterilization tools will also be diversified and used effectively as necessary.
The Governing Council will decide on policy measures aimed at containing the main trends in inflation and providing monetary and financial conditions conducive to moving inflation closer to the 5 percent objective over the medium term, taking into account the delayed effects of monetary tightening.
“Inflation indicators and key trends will be closely monitored and the Governing Council will use all tools at its disposal resolutely, in line with the primary objective of price stability,” it said.
Inflation has peaked
Inflation peaked at 75.45% in May and is expected to decline significantly from June onwards.
The CBRT said it had set its inflation target at 38% by the end of the year, compared with market expectations of around 40-45%.
The Turkish Economic and Policy Research Foundation (TEPAV) said the right conditions were in place for a rate cut from September.
