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Turkey Monetary Policy January 2024

Turkey: Central Bank continues its tightening cycle in January

At its first meeting of the year on 25 January, the Central Bank of the Republic of Turkey (CBRT) raised the 1-week repo rate to 45.00% from 42.50%. The move was in line with market expectations and matched December’s same-sized hike. Since June 2023, the CBRT has delivered seven consecutive hikes, bringing the cumulative increase to 3,650 basis points—its sharpest tightening cycle on record.

Similar to at its December meeting, the Bank said that inflation remained in line with expectations despite recent increases. The Bank noted that inflation still faces upward pressure stemming from the services sector and geopolitical risks. That said, it reiterated that the monetary tightening cycle was taming domestic demand and that both inflation expectations and the country’s external position were improving. Against this backdrop, the CBRT decided to deliver another rate hike and now sees the interest rate level as adequate for causing disinflation.

The CBRT stated that it would maintain the current interest rate “until there is a significant decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range”. The Bank added that it would adjust its stance if significant risks to the inflation outlook emerged, leaving the door open for additional hikes. The majority of our panelists see the Bank holding rates stable through Q3 before cutting rates in Q4. The CBRT will reconvene on 22 February.

The next Monetary Policy Committee decision is set to be announced on 22 February.

Clemens Grafe and Basak Edizgil, analysts at Goldman Sachs, commented on the outlook:

“We expect the [CBRT] to be able to start easing monetary policy from Q3 onwards, when we expect sequential inflation to start to fall sharply again (as it did in Q4 2023) after the pass-through from wage hikes and the removal of energy subsidies fade.”

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