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Turkey Monetary Policy June 2019

Turkey: Central Bank stands pat in June

At its 12 June meeting, the Monetary Policy Committee of the Central Bank of the Republic of Turkey (CBRT) decided to keep the one-week repo rate unchanged at 24.00% for the sixth consecutive meeting. The decision was in line with market expectations and came despite easing price pressures.

The Bank held its fire on the grounds that frail domestic demand and tight monetary policy are feeding through to softer inflationary pressures; inflation, which came in at a nine-month low of 18.7% in May and has been on a general downward path since October last year, remains elevated nonetheless. Therefore, the Committee decided that tight monetary policy should be maintained to ensure price stability.

Unlike at its previous meeting in May where the Bank seemingly removed its tightening bias—although these fears were latterly defused—the Committee struck a similar tone to the meeting in April. The CBRT noted that the “monetary stance will be determined to keep inflation in line with the targeted path”.

Prior to the decision, analysts worried that the stronger-than-expected deceleration in inflation and recent strengthening of the lira could prompt premature monetary loosening. While disinflation has buttressed the Turkish currency, Muhammet Mercan, chief economist at ING Turkey, noted that the lira has also been supported recently by dovishness from the U.S. Federal Reserve and market expectations of rate cuts in the United States, as well as by cheaper oil prices and easing geopolitical tensions between Turkey and the U.S. Nevertheless, as summarized by Yarkin Cebeci, an analyst at JPMorgan, who noted that “the CBRT is trying to rebuild credibility and an early cut could easily jeopardize this process and halt or even reverse the disinflation.”

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