Turkey Monetary Policy December 2018


Turkey: Central Bank keeps rates unchanged in December

December 13, 2018

At its monetary policy meeting on 13 December, the Central Bank of the Republic of Turkey (CBRT) left the one-week repo rate unchanged at 24.00% for the second consecutive month.

The Bank’s decision to keep rates at their current high level was motivated by a desire to consolidate the strengthening of the lira observed in recent months, as well as to temper inflation, which is still extremely elevated despite dipping in November. Any rate loosening would have risked damaging the Bank’s credibility—already shaken following a period of policy inaction earlier this year—and putting downward pressure on the currency. On the other hand, with price pressures dipping and domestic demand depressed, the CBRT saw no need for further tightening.

In its communiqué, the Bank’s language was slightly less hawkish than at the previous meeting. However, the CBRT reiterated its commitment to a tight monetary stance “until [the] inflation outlook displays a significant improvement”—taking into account fiscal policy, inflation expectations and the lagged impact of previous rate hikes—and left the door open to future rate hikes if required.

According to analysts at Unicredit:

“Considering the inflation outlook, we do not think that the CBRT will have room to cut before late 2Q19. Having said that, we cannot rule out the possibility that political calls for lower interest rates will resume in the run up to the local elections, which are expected on 31 March 2019.”

On balance, FocusEconomics Consensus Forecast panelists expect interest rates to remain elevated throughout next year as the Bank tries to rein in inflation and inflation expectations. Our panelists see the one-week repo rate ending 2019 at 20.78% and 2020 at 15.40%.

Author:, Economist

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Turkey Monetary Policy Chart

Turkey Monetary Policy November 2018

Note: One-week repo rate
Source: Central Bank of the Republic of Turkey (CBRT).

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