Turkey Monetary Policy July 2020


Turkey: Central Bank stands pat in July, signals potential end of easing cycle

July 23, 2020

At its 23 July meeting, the Monetary Policy Committee of the Central Bank of the Republic of Turkey (CBRT) stood pat for the second consecutive meeting and decided to keep the one-week repo rate steady at 8.25%. The rate is at its lowest level since before the country’s currency crisis two years ago and the decision was in line with market expectations. Earlier, on 18 July, the Central Bank announced that foreign-exchange reserve requirements would be tightened by 300 basis points for all liability types and maturity brackets, effective 24 July. The decision reflects a process of policy normalization and will see roughly USD 9.2 billion in liquidity being withdrawn from the market.

The decision to stand pat came on the Bank’s expectation of a normalization in the economy, which should lead to softer inflationary pressures. However, the Bank noted that risks to the year-end inflation outlook are on the upside due to a pandemic-related rise in unit costs. Regarding the economy, the monetary policy authority stated that the “economic recovery […] is gaining pace”, due to monetary and fiscal policy stimulus. It also mentioned that it expects the current account balance to improve going forward due to easing traveling restrictions, which should support tourism, and a recovery in exports.

In its press release, the Central Bank struck a largely unchanged tone and continued to state that a “cautious” stance is needed to keep price pressures subsiding. Moreover, the authority seemingly signaled the end of the easing cycle, noting that risks to the year-end inflation outlook are primarily upside risks. However, a worsening of the pandemic could still see the Bank easing policy ahead.

Commenting on the monetary policy outlook, Yarkin Cebeci, an analyst at JPMorgan, stated:

“We expect the CBRT to […] keep rates unchanged until the end of the year. With recovering domestic demand and increasing price pressures, the next move will be a hike, in our view. Currently, we have the first hike in 1H21, but a sharper-than-expected demand recovery could lead to heightened risks to price and financial stability, encouraging the CBRT to act earlier.”

This wait-and-see approach was corroborated by Muhammet Mercan, chief economist at ING Turkey, who commented:

“[We expect] no imminent rate changes in the near term due to rising risks on the inflation outlook and signs of economic recovery. The focus on financial stability against a backdrop of a wider external deficit, already low real rates and rising money supply, should also be drivers.”

The next monetary policy meeting is scheduled for 20 August.

Last month, FocusEconomics Consensus Forecast panelists saw the one-week repo rate ending 2020 at 8.09% and 2021 at 9.05%. Panelists are currently taking into account the latest developments and a new Consensus Forecast report will be published on 4 August.

Author:, Economist

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Turkey Monetary Policy Chart

Turkey Monetary Policy July 20 20 0

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

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