Turkey Monetary Policy


Central Bank leaves rates unchanged

At its 15 February meeting, the Monetary Policy Committee (MPC) left the 1-week repo rate unchanged at 6.25%. The decision to leave interest rates unchanged follows two successive monthly rate cuts, as the Central Bank has tried to stave off short-term foreign capital inflows, which threaten to strengthen the Turkish lira. The Committee stated that it has ?decided to closely monitor the tightening impact of the implemented policy mix ? a low policy rate, a wide interest corridor and high reserve requirement ratios (RRR) ? until the next meeting, and take additional measures along the same line, if needed?. Monetary authorities attributed the recent decrease in inflation ? from 6.4% in December to 4.2% in February ? to base effects and mentioned that energy and food prices are expected to rise gradually in the coming months on the back of soaring commodity prices. In addition, resilient domestic demand has been fanning import growth and thus widened the current account deficit. According to the Bank, the tightening measures implemented since last November are taking effect and the current account deficit is expected to narrow in the coming months. Nonetheless, the Central Bank expects that supply shocks will offset lower inflationary pressures from decelerating domestic orders. In its press release, the Central Bank adopted a more hawkish tone, highlighting that it will continue to focus on price stability in the period ahead, as the delayed impacts of monetary expansion together with global inflation risks remain a major concern.

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