Central Bank keeps interest rate stable
ANKARA
The Turkish Central Bank on April 14 kept its main interest rate unchanged for a fourth month.
In a statement following a Monetary Policy Committee meeting, the bank said it was keeping its policy rate “constant” at 14 percent.
The bank pointed out that rising energy costs resulting from geopolitical developments, temporary effects of pricing formation and strong negative supply shocks have pushed the inflation upward.
“The Committee expects disinflation process to start on the back of measures taken and decisively pursued for sustainable price and financial stability along with the decline in inflation owing to the base effect and the resolution of the ongoing regional conflict. Accordingly, the Committee has decided to keep the policy rate unchanged,” it said in a statement.
Turkey’s annual consumer inflation hit a 20-year high in March at 61.1 percent.
The decision was in line with President Recep Tayyip Erdoğan’s opposition to high borrowing costs in a bid to boost growth, investments, employment and exports.
The Central Bank has cut rates by 5 percentage points since September 2021.
In an effort to soften the blow on households, the government has implemented tax cuts on basic goods and has adjusted electricity tariffs.
The bank “will continue to use all available instruments decisively within the framework of liraization strategy until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved in pursuit of the primary objective of price stability,” it said in the statement.
“Level of capacity utilization and other leading indicators show that domestic economic activity remains strong, with the help of more robust external demand even some regional differences emerge. While share of sustainable components of economic growth increases, risks on current account balance due to energy prices continue,” it added.
ECB sticks to plan
The European Central Bank yesterday stood still in the face of record inflation, keeping its stimulus plans and rates unchanged, as the war in Ukraine cast a pall over the eurozone economy.
Meeting for the second time since the outbreak of the conflict, the bank’s 25-member governing council stuck to a plan that “should” see its bond-buying scheme come to an end in the third quarter, it said.
An interest rate hike would follow “some time” after the stimulus program comes to an end - a delay the ECB’s President Christine Lagarde stressed could be “between a week and several months” - while any increases “will be gradual.”
The decision leaves the ECB further out of step with many of its peers.
Central banks such as the Bank of England, US Federal Reserve and the Bank of Canada have already triggered their first interest rate rises in response to soaring inflation.
Calls for the ECB to follow suit as soon as possible from within the governing council have grown stronger as price rises in the eurozone have taken off.
Year-on-year inflation hit 7.5 percent in March, an all-time high for the currency bloc and well above the bank’s own 2-percent target.
The surge owes a great deal to the take off in prices for energy, commodities and food as a result of Russia’s invasion of Ukraine.
At the same time, high energy costs, added disruptions to supply chains and weaker confidence were “severely affecting” the eurozone economy, Lagarde said in a press conference.
Any hike would be the ECB’s first in over a decade and would lift rates from their current historic low levels.
The Frankfurt-based institution even set a negative deposit rate of minus 0.5 percent, meaning banks pay to park excess cash at the ECB.
Comparing the eurozone with the United States and the policies of the Fed was like “apples and oranges,” Lagarde said.
Just as the risks from the pandemic have declined, the European economy will “be more exposed and will suffer more consequences” from the war in Ukraine, she said.
The impact “will depend on how the conflict evolves, on the effect of current sanctions and on possible further measures,” Lagarde said.
Looming over the outlook was the possibility of stop to supplies of Russian gas, which many eurozone countries rely on heavily on the fuel to match their energy needs.
