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Turkey Monetary Policy August 2020

Turkey: Central Bank stands pat in August

At its meeting on 20 August, the Central Bank’s Monetary Policy Committee (MPC) opted to keep the one-week repo rate unchanged at 8.25%, in line with market expectations. Following a near year-long easing cycle, the MPC held fire for the third consecutive meeting, and the rate remains at its lowest level since before the country’s currency crisis in 2018. On the same day, the Bank also announced that it was raising both lira and foreign-exchange reserve requirement ratios for banks meeting real credit growth conditions in order to support the lira—roughly TRY 17 billion and USD 8.5 billion is expected to be withdrawn from the market.

The decision to stand pat reflected the Bank’s view that previous monetary and fiscal stimulus measures to mitigate the fallout from Covid-19 are having the desired effect, contributing to financial stability and the economic recovery, which is gaining pace. Although headline and core inflationary pressures have remained elevated, the Bank expects inflationary pressures to subside going forward, in part due to its measures to tighten liquidity.

In its press release, the Central Bank struck a largely unchanged tone, reaffirming its somewhat hawkish stance by stating that “the continuation of a cautious monetary stance” is required to keep the disinflationary process on track.

The next monetary policy meeting is scheduled for 24 September.

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