Agencies
Turkey’s central bank stuck to its tight monetary stance on Tuesday as it left its benchmark interest rate unchanged for the fifth straight month, reiterating that it remains vigilant to inflation risks even as it expects disinflation to continue.
In a hint of when borrowing costs might come down, the Central Bank of the Republic of Turkey (CBRT) said it is increasingly focused on the alignment of inflation expectations and pricing with its own projections for the disinflation path.The bank last raised the one-week repo rate in March by 500 basis points, capping an aggressive tightening cycle that began more than a year ago to rein in soaring prices.
It has since held steady while vowing to hike rates more if the outlook worsens, though analysts generally expect cuts to begin later this year.
The “alignment of inflation expectations and pricing behavior with projections has gained relative importance for the disinflation process,” the bank said in a statement following its Monetary Policy Committee (MPC) meeting.“Indicators for the third quarter suggest that domestic demand continues to slow down with a diminishing inflationary impact,” it added.A higher benchmark rate eventually leads to higher rates for auto loans, mortgages and other forms of consumer borrowing.The Turkish lira strengthened to 33.81 against the U.S. dollar after the decision and stood at 33.82 at 11:19 a.m. GMT. It touched a record low of 33.84 earlier on Tuesday.Annual inflation began dipping in June before touching 61.78% last month and is seen falling further with the impact of tight policy and a slowdown in domestic demand to stand at around 40% at the end of this year.
The bank on Tuesday said the underlying trend of monthly inflation rose slightly in July but remained below its second quarter average.
It repeated that it would maintain its tight monetary stance until “a significant and sustained decline in the underlying trend of monthly inflation is observed and expectations converge to the projected forecast range.” “Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen,” the statement read.
Since June last year, the bank has raised its policy rate by a total of 4,150 basis points, reversing years of monetary stimulus to boost economic growth.