Turkey: TCMB stands pat again in May
On 25 May, the Central Bank of the Republic of Turkey (TCMB) kept the one-week repo rate unchanged at 8.50% for the third consecutive meeting. The hold was in line with the Bank’s previous statements and fulfilled market expectations.
In its communiqué, the TCMB was more upbeat than in previous meetings regarding the economy. In particular, it said that recent data pointed to a faster-than-expected recovery from February’s earthquakes; the Bank is now certain that the cataclysm will not have a lasting effect on the economy. That said, it reiterated that it was closely monitoring the effect of earthquake-driven supply-demand imbalances on inflation. Meanwhile, the lira depreciated further in recent weeks, following Erdogan’s victory in the first round of the general elections. Against this backdrop, the Bank intervened in the FX market to soften the blow to the currency. However, it ultimately decided to hold rates in a bid to maintain its support for the economy.
The Bank’s forward guidance was unchanged. It reiterated that rates were “adequate to support the necessary recovery in the aftermath of the earthquake”. Meanwhile, the TCMB also reaffirmed its commitment to the liraization strategy, which aims to ensure the prevalence of the lira in the Turkish financial system by regulating bank reserves and loans.
The next meeting is scheduled for 22 June.