Central Bank holds key policy rate at 37 percent

ANKARA

As widely expected, the Turkish Central Bank’s Monetary Policy Committee (MPC) kept the policy rate, the one-week repo auction rate, unchanged at 37 percent.
The MPC also maintained the Central Bank overnight lending rate and the overnight borrowing rate at 40 percent and 35.5 percent, respectively.
The impact of geopolitical developments on the inflation outlook through the cost channel, economic activity and expectations is closely monitored, said the bank on June 11 in a statement accompanying the rate decision.
“In case of a significant and persistent deterioration in the inflation outlook, monetary policy stance will be tightened,” it added.
The MPC reiterated that it remains highly attentive to upside risks on inflation.
The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate and expectation channels, said the statement.
The committee stressed that it would determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets.
Monetary policy decisions are made prudently on a meeting-by-meeting basis with a focus on the inflation outlook, it added.
The committee reiterated that it will make its policy decisions so as to create the monetary and financial conditions necessary to reach the 5 percent inflation target in the medium term.
The MPC meeting came after the official data showed that Türkiye’s annual inflation rate edged up from 32.4 percent in April to 32.6 percent in May with consumer prices advancing 1.7 percent month-on-month.
Earlier this week in a televised interview Finance Minister Mehmet Şimşek acknowledged that the Middle East conflict was creating inflationary pressures on the economy.
Had this external shock not occurred, the probability of inflation ending this year slightly below or slightly above 20 percent was quite high, he said.
“When we consider the direct and secondary effects of the war, as well as the oil price levels markets are pricing in for the entire year, there is at least an additional 5 percentage points of inflationary pressure,” he added.
The next MPC meeting is scheduled for June 23. Most analysts expect the Central Bank to hold the key interest rate again at 37 percent next month.