Turkey’s Central Bank Holds Key Interest Rate Steady at 50%

Reuters

Turkey’s central bank maintained its key interest rate at 50%⁢ for the sixth consecutive⁤ month‌ on September 19, aligning with expectations. The bank emphasized‌ its vigilance regarding inflation risks ⁣but omitted any mention of potential tightening.

The⁣ bank stated that ⁢it will utilize monetary policy tools effectively if a significant and sustained decline in inflation is anticipated. This marks a shift from previous statements, where the bank indicated that it would tighten its policy stance if such a decline in inflation occurred.

The ⁣Turkish lira remained relatively stable, trading at 34.02 ⁣against the US‍ dollar following the decision.

Interest Rate History

The last time the‌ bank ‌increased its policy rate was in March, when ⁤it rose ​by 500 basis points, concluding an aggressive tightening⁣ cycle initiated in June last year to combat rising inflation.

Since ⁤then, the bank has maintained the repo rate, promising to tighten further if ​the outlook deteriorates. ​A recent Reuters poll revealed that analysts expect the bank ‌to cut⁣ its‍ first rate around November.

Analyst Expectations

All 16 respondents to the poll anticipated the bank would leave the policy rate unchanged this week. The median​ estimate suggests the rate will decrease to 47% by the end of the year.

The poll also indicated that the⁣ rate could be reduced as early as October or as ⁣late as next year, with a ‌predicted decrease ⁤of over ​20 percentage points⁣ by the end of 2025.

Inflation Outlook

Annual inflation⁤ in Turkey decreased below 52% in ⁤August, down from a peak of 75% in May. The‌ government forecasts that inflation will⁣ fall below​ 42% by the end ⁤of the ⁤year and reach 17.5% by the end of 2025.

The central bank has increased its policy rate by 4,150 basis ‍points since June 2023, ⁢reversing ⁣years of ⁣monetary stimulus supported by President Tayyip Erdogan to boost ‌economic growth.