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Turkey Monetary Policy March 2022

Turkey: Central Bank stands pat in March despite greater inflation risks

The Monetary Policy Committee of the Central Bank of Turkey (TCMB) held fire at its 17 March meeting, keeping the one-week repo rate unaltered at 14.00%. The decision, which was in line with market analysts’ expectations, came despite already red-hot inflation and amid greater upside risks to the inflation outlook, partly as a result of the Russia-Ukraine war. Moreover, the Bank reiterated its push for greater liraization of the economy.

Regarding inflation, the Bank once again stated that in its view the “increase in inflation in the recent period has been driven by rising energy costs resulting from the heightened regional conflict, [and] temporary effects of pricing formations that are not supported by economic fundamentals”. Moreover, decision makers expect inflation to begin to ease due to a favorable base effect and a resolution of the Russia-Ukraine conflict. As a net importer of energy, greater prices for oil and gas pose risks to the country’s external position. Therefore, the Bank commented that it is closely monitoring those dangers. Turning to the economy, the Bank stated that high-frequency indicators highlighted robust economic activity, aided by the external sector.

The Bank struck a largely unchanged tone in its press release, commenting that it “will continue to use all available instruments decisively within the framework of liraization strategy until strong indicators point to a permanent fall in inflation and the medium term 5.0 percent target is achieved in pursuit of the primary objective of price stability.” The statement continued to suggest that the primary tool to tackle inflation will be alternative measures to foster de-dollarization of the economy, instead of more transparent policymaking through the alteration of the one-week repo rate.

The next meeting is scheduled for 14 April.

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