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Turkey Monetary Policy January 2023

Turkey: TCMB holds again in January

On 19 January, the Central Bank of the Republic of Turkey (TCMB) fulfilled market expectations by once again keeping the one-week repo rate unchanged at 9.00%. The decision marked the second consecutive hold after the Bank brought rates to President Erdogans single-digit target.

In its communiqué, the TCMB was more optimistic than in previous meetings regarding the countrys performance in the fourth quarter of last year. In particular, it stated that robust domestic demand offset weaker foreign demand. Additionally, the Bank highlighted that inflation had fallen in recent months thanks to the liraization strategy, which aims to ensure the prevalence of the lira in the Turkish financial system through the use of regulations on bank reserves and loans.

The Banks forward guidance grew more ambiguous. Following two consecutive meetings in which it declared that 9.00% was the adequate policy rate, the TCMB refrained from making such a statement and merely reiterated that it will “continue to use all available instruments decisively until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved”.

Analysts at Fitch Solutions commented on the outlook:

“Anything other than a rate hold in the February 23 meeting would be a surprise to us. However, we highlight that even given inflationary dynamics, the biggest risks to this view is a move towards lower interest rates. Indeed for the past twelve months the CBRT has prioritized economic growth over inflation control and could continue to favour this policy in the run-up to the elections.”

The next meeting is scheduled for 23 February.

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