Turkiye's Central Bank announces interest rate decision

The Central Bank of the Republic of Turkey (CBRT) Monetary Policy Committee (MPC) announced its interest rate decision for June. As expected, the CBRT kept the policy rate unchanged at 50%. The post-meeting statement highlighted that geopolitical risks and food prices continue to exert inflationary pressures. A timeline for inflation reduction was also provided.

Publication: 28.06.2024 - 14:44
Turkiye's Central Bank announces interest rate decision
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The Monetary Policy Committee (MPC), chaired by Fatih Karahan, decided to maintain the policy rate at 50%.

The Central Bank had previously increased the policy rate by 650 basis points in June, 250 in July, 750 in August, 500 each in September, October, and November, and 250 basis points in December and January.

In February, the Central Bank kept the policy rate steady at 45 but raised it by 500 basis points to 50 in March. The rate was held at 50 in both April and May.

Economists' Expectations

According to the CBRT's market participants survey, all economists predicted that the policy rate would remain at 50%.

The median expectation for the year-end policy rate is also 50%.

Among the economists who shared their year-end expectations, three predicted the policy rate would stay at 50%, one at 47.5%, one at 45%, one at 44%, and two at 40%.

"Geopolitical Risks and Food Prices Persist"

In the post-meeting statement, the following points were noted:

"Monthly inflation's underlying trend experienced a temporary interruption in May. Recent indicators confirm that domestic demand, while still at an inflationary level, is slowing. High service inflation, inflation expectations, geopolitical risks, and food prices continue to exert inflationary pressures. The Committee closely monitors inflation expectations and pricing behaviors' alignment with projections."

Indications for the Second Half of the Year

The impacts of monetary tightening on loans and domestic demand are being closely monitored. While deciding to keep the policy rate unchanged, the Committee reiterated its cautious stance against upward risks to inflation, considering the delayed effects of monetary tightening. A tight monetary policy stance will be maintained until a significant and lasting decline in the underlying trend of monthly inflation is achieved and inflation expectations converge towards the forecast range. If a notable and lasting deterioration in inflation is anticipated, the monetary policy stance will be tightened. The resolute stance in monetary policy will reduce the underlying trend of monthly inflation through the balancing of domestic demand, real appreciation of the Turkish lira, and improvement in inflation expectations, ensuring disinflation in the second half of the year.

Inflation Target Set at 5%

Should unforeseen developments occur in credit and deposit markets, the monetary transmission mechanism will be supported by additional macroprudential measures. Liquidity developments are being closely watched. Sterilization tools will be diversified and used effectively when necessary.

The Committee will set policy decisions to provide monetary and financial conditions that will reduce the underlying trend of inflation and bring inflation to the medium-term target of 5%.

Indicators related to inflation and its underlying trend will be closely monitored, and the Committee will use all available tools decisively in line with the primary objective of price stability.