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Turkey Monetary Policy September 2023

Turkey: Central Bank hikes again in September

On 21 September, the Central Bank of the Republic of Turkey (CBRT) raised its one-week repo rate from 25.00% to 30.00%. The move marked the fourth consecutive hike and was in line with market expectations.

The CBRT highlighted that inflation came in above expectations in July and August on the back of robust domestic demand and sticky services inflation. It added that inflation expectations had deteriorated. Against this backdrop, the Bank decided to continue hiking to anchor inflation expectations and start the disinflationary process as soon as possible. More positively, the CBRT maintained that inflationary pressures stemming from taxes, wages and exchange rates had already largely passed through prices and that it now expected the underlying trend in inflation to decline.

The Bank’s forward guidance remained hawkish, as highlighted by its statement that “Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved.” As such, our panelists expect the CBRT to deliver additional hikes before year-end.

The next Monetary Policy Committee decision is scheduled for 26 October.

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

“Given its recent commentary, we now think the TCMB [CBRT] places greater weight on the inflation differential in its reaction function and that the repo rate has become a more important policy instrument in targeting inflation, even though the Bank continues to utilise macroprudential measures to control monetary conditions. Therefore, we expect the TCMB to deliver substantial rate hikes over the remainder of the year, reflecting high inflation momentum in the near term.”

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