ISTANBUL: Turkiye’s central bank held interest rates steady at 50% for a fifth straight month on Tuesday as expected, and repeated it remains vigilant to inflation risks even as it expects disinflation to continue.
In a hint of when rates might come down, the bank said it is increasingly focused on the alignment of inflation expectations and pricing with its own projections for the disinflation path.
The central bank last raised the policy rate in March, by 500 basis points, capping an aggressive tightening cycle that began more than a year ago to rein in years of 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 behaviour with projections has gained relative importance for the disinflation process,” the policy committee said.
Turkish central bank holds rate at 50%, attentive to inflation risks
“Indicators for the third quarter suggest that domestic demand continues to slow down with a diminishing inflationary impact,” it added.
The lira strengthened to 33.81 after the decision and stood at 33.82 at 1119 GMT. It touched a record low of 33.84 earlier on Tuesday.
Annual inflation began dipping in June and touched 61.78% last month in what is expected to be a gradual, lasting decline. Economists predict it will reach about 42% by year end.
Since June last year, the central bank has raised its policy rate by a total 4,150 basis points, reversing years of monetary stimulus supported by President Tayyip Erdogan to boost economic growth despite soaring prices.
The policy U-turn is clamping down hard on credit and economic growth, and aims to leave behind a years-long cost-of-living crisis and series of currency crashes.
Earlier this month, the central bank maintained its inflation forecasts for end-2024 and -2025 at 38% and 14% respectively, projecting it to fall to 9% by the end of 2026.
The tight monetary policy stance could be maintained even with rate cuts, Central Bank Governor Fatih Karahan said in a recent speech that also highlighted the importance of inflation expectations converging with the bank’s own forecast range.
In a Reuters poll last week, all 17 economists expected the bank to hold rates this month and to not ease until October at the earliest, with four forecasting October, four forecasting November and five forecasting early next year.
The policy rate was expected to drop by 500 basis points to 45% by the end of 2024, according to the poll.
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