Turkey: Central Bank stands pat in June amid a weakened lira and commodity-fueled price pressures
June 17, 2021
At its 17 June meeting, the Monetary Policy Committee of the Central Bank of Turkey left the one-week repo rate unchanged at 19.00%, amid renewed pressure on the lira and elevated commodity prices. The decision marked the third consecutive hold and met market analysts’ expectations.
In deliberating the decision, the Bank noted that rising commodity prices, domestic demand conditions and supply-side issues in certain sectors, as well as high inflation expectations, continued to pose risks to the inflation outlook. More positively, the Committee noted the effect of prior monetary policy tightening on credit growth, which has begun to ease and should lead to a drop in inflation going forward. Meanwhile, the Bank stated that domestic activity was strong, despite having eased somewhat in the second quarter due to tighter Covid-19 restrictions. Moreover, accelerating vaccination progress has enabled a recovery in the services and tourism sectors, which should support the economy and narrow the current account deficit going forward.
The Bank’s statement was largely unchanged from the prior meeting, noting that the “current tight monetary policy stance will be maintained decisively until the significant fall in the April inflation report’s forecast path is achieved”. Moreover, “the policy rate will continue to be determined at a level above inflation to maintain a strong disinflationary effect”. A loosening of monetary policy is therefore not expected in the near term. However, panelists expect the Bank to cut the one-week repo rate towards the end of the year as price pressures cool.
The next meeting is scheduled for 14 July.
Author: Jan Lammersen, Economist