The interest rate decision of the Central Bank of the Republic of Turkey for June was announced. The CBRT’s Monetary Policy Committee (MPC) meeting decided to leave the policy rate unchanged at 50 percent as in May. Economists’ expectations were also in favor of leaving the interest rate unchanged. It was noted that the weakening in the underlying trend of monthly inflation was temporarily interrupte.
The Central Bank of the Republic of Turkey announced the last minute interest rate decision that the markets were curious about. The Monetary Policy Committee (MPC) of the Central Bank left the policy rate, the one-week repo auction interest rate, unchanged at 50 percent. The Bank had also kept the policy rate unchanged at its previous meeting.
All economists participating in AA Finans’s expectations survey expected the CBRT to leave the policy rate unchanged at 50 percent at the Monetary Policy Committee (MPC) meeting.
In the statement made after the interest rate decision, the following was recorded:
“The Monetary Policy Committee (the Committee) decided to keep the policy rate, the one-week repo auction rate, unchanged at 50 percent.
The weakening in the underlying trend of monthly inflation was temporarily interrupted in May. Recent indicators confirm that domestic demand has slowed down, albeit still at inflationary levels. The high course and rigidity in services inflation, inflation expectations, geopolitical risks and food prices keep inflationary pressures alive. The Committee closely monitors the alignment of inflation expectations and pricing behavior with projections.
The effects of monetary tightening on credit and domestic demand are closely monitored. Considering the lagged effects of the monetary tightening, the Committee decided to keep the policy rate unchanged, yet reiterated its cautious stance against upside risks to inflation. The tight monetary policy stance will be maintained until the underlying trend of monthly inflation displays a significant and lasting decline and inflation expectations converge to the projected forecast range. In case of a significant and permanent deterioration in inflation, the monetary policy stance will be tightened. The decisive monetary policy stance will bring down the underlying trend of monthly inflation and disinflation will be established in the second half of the year through stabilization in domestic demand, real appreciation of the Turkish lira and improvement in inflation expectations.
“Sterilization tools will be used effectively by diversifying when necessary”
In case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism will be supported by additional macroprudential measures. Liquidity developments are closely monitored. Sterilization tools will be diversified and used effectively when necessary.
Taking into account the lagged effects of monetary tightening, the Committee will make policy decisions in a way to provide the monetary and financial conditions that will bring down the underlying trend of inflation and bring inflation to the 5 percent target in the medium term.
Indicators for inflation and underlying inflation will be closely monitored and the Committee will use all available tools decisively in line with the main objective of price stability.
The Committee will take its decisions in a predictable, data-driven and transparent framework.”
How did the Central Bank reach today in interest rates?
Following the presidential and parliamentary elections held in May last year, a tight monetary policy was adopted and interest rates started to increase.
During the presidency of Naci Ağbal, the Central Bank of the Republic of Turkey (CBRT) lowered its policy rate from 19 percent in March 2021 to 8.5 percent in 2021 and 2022 under the administration of Şahap Kavcıoğlu.
After Şahap Kavcıoğlu was replaced by Hafize Gaye Erkan, the Central Bank raised the interest rate for the first time in 27 months in June 2023 and raised the policy rate from 8.5 percent to 15 percent.
In the 7 months and 23 days Hafize Gaye Erkan served as Governor, the interest rate was raised to 45 percent.
When Erkan left, she was replaced by her deputy Fatih Karahan. Under Karahan, the interest rate was kept constant at 45 percent at the first Monetary Policy Committee meeting in February.
The CBRT raised the interest rate, which was expected to be kept constant before the March 31 local elections, to 50 percent on the grounds of “deterioration in the inflation outlook”.
The Central Bank had left the interest rate unchanged at 50 percent in April and May.
