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Turkey Monetary Policy January 2021

Turkey: Central Bank leaves rates unchanged in January

The Monetary Policy Committee (MPC) of the Central Bank of Turkey stood pat at its first meeting of the year on 21 January, leaving the one-week repo rate at 17.00%. The decision followed two consecutive hikes in November and December 2020 and was in line with market expectations.

The decision to hold fire came despite the unfavorable inflation outlook as currency weakness, rising food and commodity prices, and elevated inflation expectations have negatively impacted price-setting behavior. However, the MPC noted that previous policy action has slowed down credit growth and the Bank expects this to exert downward pressure on inflation. That said, high commodity prices, as well as wage and price-control adjustments, continue to weigh on the medium-term inflation outlook. Therefore, the Bank announced that it will maintain a “decisively” tight stance for a longer period of time, until indicators point to a pronounced and sustained fall in inflation and greater price stability. This suggests that it will take time for the MPC to be certain that inflation is on a downward path.

The Bank reiterated its hawkish stance in the press release, stating that it will deliver “additional monetary tightening” if needed. As such, the Bank opened the door to further rate hikes if inflation surprises on the upside.

The next monetary policy meeting is scheduled for 18 February.

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