The Central Bank left the policy rate unchanged at 50 percent, in line with market expectations.
The Monetary Policy Committee (MPC) of the Central Bank of the Republic of Turkey (CBRT) announced its interest rate decision for May. Accordingly, the Bank kept the policy rate (one-week repo auction rate) unchanged at 50 percent in line with expectations.
New Measures Coming for Excess Liquidity
In the statement made by the MPC, the following statements were made:
“The Monetary Policy Committee decided to keep the policy rate (one-week repo auction rate) unchanged at 50 percent.
The underlying trend of monthly inflation weakened slightly in April. Recent indicators suggest a slowdown in domestic demand compared to the first quarter. However, the rise in imports of consumption goods limits the improvement in the current account balance. The high course of services inflation, inflation expectations, geopolitical risks and food prices cause inflationary pressures to persist. The Committee closely monitors the alignment of inflation expectations and pricing behavior with projections.
The effects of monetary tightening on credit and domestic demand are closely monitored. Considering the lagged effects of the monetary tightening, the Committee decided to keep the policy rate unchanged, but maintains its cautious stance against upside risks to inflation. The tight monetary policy stance will be maintained until the underlying trend of monthly inflation displays a significant and lasting decline and inflation expectations converge to the projected forecast range. In case of a significant and permanent deterioration in inflation, the monetary policy stance will be tightened. The decisive monetary policy stance will bring down the underlying trend of monthly inflation and disinflation will be achieved in the second half of the year through stabilization in domestic demand, real appreciation in the Turkish lira and improvement in inflation expectations.
In order to simplify the macroprudential framework and enhance the functionality of the market mechanism, the securities facility was terminated. Considering the recent credit growth and deposit developments, additional steps will be taken to maintain macro financial stability and support the monetary transmission mechanism. The excess liquidity created by domestic and non-residents’ demand for Turkish lira financial assets will be sterilized through additional measures.
All available instruments will be used decisively for price stability.
Taking into account the lagged effects of monetary tightening, the Committee will make policy decisions in a way to provide the monetary and financial conditions that will bring the underlying trend of inflation down and bring inflation to the 5 percent target in the medium term. Indicators regarding inflation and underlying inflation will be closely monitored and the Committee will use all available tools decisively in line with the main objective of price stability.”
Past Interest Rate Increases
In 2023, the Central Bank raised interest rates by 650 basis points in June, 250 basis points in July, 750 basis points in August, 500 basis points each in September, October and November, 250 basis points each in December and January and 500 basis points in March, totaling 4,150 basis points. The Bank kept interest rates unchanged in February and April.
