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Turkey Monetary Policy March 2021

Turkey: Central Bank aggressively tightens stance in March

At its 18 March meeting, the Monetary Policy Committee of the Central Bank of Turkey raised the one-week repo rate by 200 basis points from 17.00% to 19.00%. The decision followed two consecutive holds and came in above expectations of a softer 100 basis-point rate hike.

The decision to deliver a front-loaded and strong tightening of financial conditions reflected the Bank’s assessment that the recent upward trend in credit growth and rising import costs have lessened the impact of previous tightening on the inflation outlook. The increase in import costs is partly due to higher commodity prices amid the global recovery, as well as renewed pressure on the Turkish currency. Moreover, the Bank noted that elevated inflation expectations continue to adversely affect price-setting behavior. Regarding the economy, the Bank confirmed that “economic activity is on a strong course” thanks to the gradual easing of restrictive measures, while it also warned that risks to activity “remain significant”.

The Bank continued to strike a hawkish tone in the press release, reaffirming that “the tight monetary policy stance will be maintained […] for an extended period until strong indicators point to a permanent fall in inflation and price stability” and the inflation target of 5% is reached.

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