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Turkey Monetary Policy February 2023

Turkey: TCMB stands pat in March

On 23 March, the Central Bank of the Republic of Turkey (TCMB) fulfilled market expectations by keeping the one-week repo rate unchanged at 8.50%. The hold follows a rate cut in February, after a devastating earthquake hit the southeast of the country.

The TCMB decided to stand pat in order to support momentum after the earthquake. Positively, the Bank reiterated that it expects the cataclysm to hamper economic activity only in the short term. Regarding inflation, the TCMB remained somewhat optimistic, stating that price pressures had declined in recent months due to its policies. That said, the Bank highlighted that it was closely monitoring the effect of earthquake-driven supply-demand imbalances on inflation.

The Bank’s forward guidance was unchanged. It reiterated that rates are “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 through regulations on bank reserves and loans.

Muhammet Mercan, chief economist at ING, commented on the outlook:

“Overall, the [TCMB] has hinted that it will maintain a wait-and-see mode, while we can expect further macro-prudential measures to maintain favourable financial conditions with the objective of minimising the effects of the earthquakes. Given this backdrop, the [TCMB] remains on the policy path of keeping interest rates low, maintaining a selective credit policy and pursuing a ‘Liraisation’ strategy.”

The next meeting is scheduled for 27 April.

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