The Central Bank of Turkey on Wednesday kept its one-week repo rate – also known as the policy rate – stable at 19%, in line with market expectations.
Following the seventh meeting of the Monetary Policy Committee of the year, the bank said in a statement: “The strong recovery in global demand, rising commodity prices, supply constraints in some sectors and rising transport costs have led to producers and the consumer price rises internationally. ”
“The effects of rising global inflation and inflation expectations on international financial markets remain significant,” he added.
The bank had also kept its interest rate constant at 19% at the previous meeting of its Monetary Policy Committee last month.
Turkey’s annual inflation rate stands at 17.53% in June, according to the latest data from the Turkish Institute of Statistics.
Domestic demand has declined slightly due to tightening financial conditions and restrictions aimed at curbing coronavirus infections, the bank noted, although it added that external demand remains strong.
“Accelerating the spread of vaccination in the family facilitates recovery in the services and tourism sectors, which have been negatively affected by the pandemic and leads to a more balanced composition of economic activity,” he added.
The Bank noted that the tight monetary policy implemented has had a positive impact on the current account balance, which is expected to be in surplus for the rest of the year.
“Given the high levels of inflation and inflation expectations, the current tight monetary policy stance will be firmly maintained until a significant decline is achieved in the way of the April Inflation Report forecast.”
He underlined that the bank will continue to use its instruments for price stability.
Cristian Maggio, head of emerging market strategy at Canada-based TD Securities, stressed that inflation dynamics in Turkey still look unfavorable, saying at the moment, “I find it very difficult to ease even in August.” .
If the bank is leaning towards a cut in August, it will have to start signaling this week, he noted, adding: “Q4 is probably the earliest that the CBRT (Central Bank of the Republic of Turkey) can cut.”
“Total inflation rose significantly to 17.5% year-on-year in June, far exceeding expectations,” recalls Phoenix Kalen, director of emerging markets strategy at Paris-based Societe Generale.
“We expect rates unchanged until November and we have made a rate cut of 100 basis points in the fourth quarter,” he said.
Source: Anadolu Agency