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Turkey Monetary Policy May 2024

Turkey: Central Bank maintains rates in May

At its meeting on 23 May, the Central Bank of the Republic of Turkey (CBRT) decided to keep the 1-week repo rate at 50.00%. The move marked the second consecutive hold and was in line with market expectations.

The decision to maintain the interest rate stable was driven by the slight deceleration in the underlying trend of month-on-month inflation seen in April, as well as by the recent slowdown in domestic demand. That said, the CBRT said price pressures continued to be stoked by persistently high levels of services inflation, inflation expectations, geopolitical risks, and food prices. Shortly after its meeting, the Bank announced several macroprudential measures, such as raising reserve requirements on lira and FX-protected deposits in a bid to mop up excess lira liquidity in the financial system.

The Central Bank’s forward guidance was unchanged. The CBRT emphasized its commitment to maintaining a tight monetary stance until inflation declines significantly and sustainably and inflation expectations align with their projected forecast range. It also reiterated that monetary policy would be tightened further if inflation is anticipated to spike. Our Consensus is for the Bank to cut rates by end-2024. That said, a minority of panelists expect additional hikes.

Muhammet Mercan, chief economist at ING, commented:

“Assuming the currency follows a more stable course for the rest of the year with the continuation of the tight monetary stance, we expect inflation to be in the CBT’s forecast range with the central bank keeping the policy rate on hold at 50% for longer. We factor in a small cut by end-2024.”

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