Central Bank holds policy rate unchanged at 8.5 pct

Central Bank holds policy rate unchanged at 8.5 pct

Central Bank holds policy rate unchanged at 8.5 pct

As widely expected, Türkiye’s Central Bank has once again kept its policy rate - one-week repo auction rate- constant at 8.5 percent. 

The committee assessed that the current monetary policy stance is adequate to support the necessary recovery in the aftermath of the earthquake by maintaining price stability and financial stability, the Central Bank said on May 25 in the statement released after the Monetary Policy Committee (MPC) meeting.

It was the MPC’s fifth rate-setting meeting this year. It will hold seven more meetings in the remainder of the year. 

While the level and underlying trend of inflation continue to improve with the support of the implemented integrated policy approach, the effect of earthquake-driven supply-demand imbalances on inflation is closely monitored, the bank said. 

It reiterated that the bank will continue to use all available instruments decisively 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. The statement added that the bank will implement Liraization Strategy in order to create an institutional basis for permanent and sustainable price stability.

The annual inflation rate in Türkiye continued to improve in April. Inflation slowed from 50.5 percent in March to 43.7 percent last month, according to the data from the Turkish Statistical Institute (TÜİK).

The Central Bank’s survey of the market participants showed earlier this month that inflation is expected to be 37.2 percent at the end of 2023. 

It has become even more important to keep financial conditions supportive to preserve the growth momentum in industrial production and the positive trend in employment after the earthquake, the bank said in the statement.

 ‘Economic recovery in earthquake zones’

Before the earthquakes hit Türkiye’s southern provinces in early February, indicators pointed to a stronger domestic demand compared to foreign demand as well as an increase in the growth trend in the first quarter of 2023, the bank noted. 

Recent data show that economic activity in the earthquake zone has been recovering faster than expected, the monetary authority said, adding that it is becoming evident that the earthquake will not have a permanent impact on performance of the Turkish economy in the medium term.

It, however, warned that the ongoing increase in domestic consumption demand, high level of energy prices and the weak economic activity in main trade partners keep the risks on the current account balance alive.