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Turkey Monetary Policy February 2022

Turkey: Central Bank stands pat in February

The Central Bank of Turkey’s Monetary Policy Committee stood pat at its second meeting of the year held on 17 February. As expected by market analysts, the one-week repo rate remained at 14.00%, despite red-hot inflation. Moreover, the Bank reiterated its aim to foster greater ‘liraization’ of the economy.

The decision to hold fire was driven by the Bank’s assessment that the rise in inflation was driven by “pricing formations that are not supported by economic fundamentals, supply side factors, supply constraints, and demand developments.” Moreover, the Central Bank expects inflation to enter a downward trajectory on the back of previous policy measures and a supportive base effect. Regarding the economy, the Committee noted that high-frequency data continued to point to robust activity, aided by external demand. Further, the Bank continued to emphasize the role of a current account surplus for price stability.

In the press release, the Bank restated that it “will continue to use all available instruments decisively […] until strong indicators point to a permanent fall in inflation”. However, it added that it will do so “within the framework of liraization strategy”. The Bank’s statement suggests that it will rely on alternative measures to spur de-dollarization and support the country’s currency alongside foreign reserves.

The next meeting is scheduled for 17 March.

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