Turkey: Central Bank maintains policy rate in August
At its meeting on 20 August, the Central Bank of the Republic of Turkey (CBRT) decided to keep the 1-week repo rate at 50.00%. The decision marked the fifth successive hold and aligned with market expectations.
In justifying its decision, the Bank stated that the underlying trend of monthly inflation continued to rise in July, albeit remaining below the second-quarter average. In addition, the Bank highlighted that services inflation and inflation expectations remain stubbornly elevated, and that geopolitical developments still pose an upside risk to the inflation outlook. That said, domestic demand has continued to slow, diminishing inflation in turn, particularly for goods, according to the Bank.
The Bank reiterated that it intends to maintain a tight monetary stance until there is both, firstly, a significant and sustained decline in the underlying trend of inflation towards the 5.0% medium-term target and, secondly, an alignment of inflation expectations with the projected forecast range. It also stated that monetary policy would be tightened if a significant and persistent deterioration in the inflation outlook materializes. The majority of our panelists expect the Bank to deliver mild rate cuts in Q4. The next meeting is scheduled for 19 September.
Muhammet Mercan, chief economist at ING, commented:
“Given that the relatively stable currency and normalisation in domestic demand should support a decline in the underlying inflation trend over the remainder of this year, we see room to cut in November or December, depending on the data.”