Central Bank of Turkey maintains current interest rate levels.
Istanbul (Reuters) - Turkey's central bank kept its key interest rates steady, bucking expectations of a cut, as it aims to tame high inflation and secure overall economic stability.
The one-week repo rate, essentially the overnight lending rate, held firm at 49%, defying predictions of a decrease to 47.5%. Similarly, the benchmark one-week repo rate remained unchanged at 46%.
The decision comes after a dramatic selloff in Turkish assets following the imprisonment of Istanbul mayor Ekrem Imamoglu in March. In response, the central bank raised the benchmark rate in April to its current level, stepping back from the easing trend initiated in December.
Inflation, a persistent issue for the Turkish economy, has shown some signs of easing. Although it was still sky-high at 35.4% in May, it was the lowest it had been since November 2021. Furthermore, inflation expectations have improved.
Despite these encouraging trends, the Central Bank's Monetary Policy Committee insists on maintaining a tight monetary policy until these gains are well-established and lasting. Here's why:
- Core inflation decline and disinflation trend: Preliminary data indicates that the decline in core inflation will persist into June.
- Slowdown in domestic demand: The moderation in domestic demand bolsters the case for a cautious stance on interest rates.
- Geopolitical tensions and global trade risks: The central bank is closely watching regional geopolitical conflicts and rising protectionism in world trade, as these uncertainties could influence inflation levels and economic stability.
- Strengthening disinflation process: The tight monetary policy is crucial for supporting the disinflation process, which is being aided by demand moderation, real appreciation of the Turkish lira, and improving inflation expectations.
In essence, the central bank is hesitant to ease monetary policy until it is confident that inflation has been reined in and economic stability has been firmly established. This approach follows a series of rate hikes early in the year, including a surprise increase in April, underscoring the bank's dedication to price stability before considering cuts.
In a nutshell, the central bank left rates unchanged to hold its tight monetary policy until a sustained decline in inflation is confirmed and overall price stability is achieved, all while taking into account ongoing economic and geopolitical risks.
The central bank maintained its key interest rates, with the one-week repo rate remaining at 49% and the benchmark rate at 46%, despite expectations for a decrease. This decision was made to support the ongoing disinflation process, in light of the decline in core inflation, moderation in domestic demand, and geopolitical tensions. The bank aims to hold its tight monetary policy until a sustained decline in inflation is confirmed and overall price stability is achieved.
