Turkish Central Bank Keeps Policy Rate Unchanged At 8.50%

Turkey’s central bank maintained its key interest rate for the third straight time at its May meeting on Thursday, and policymakers assessed that the current monetary policy stance is adequate to support the necessary recovery from the outcome of the earthquake by maintaining price stability and financial stability.

The Monetary Policy Committee of the Central Bank of the Republic of Turkey, or CBRT, led by Governor Sahap Kavcioglu, left the policy rate, which is the one-week repo auction rate, unchanged at 8.50 percent. The move was in line with expectations.

The decision came after the general elections in the country held on May 14.

Previously, the policy rate was lowered by 50 basis points in February. Under immense pressure from President Recep Tayyip Erdogan, the central bank slashed the rate by a cumulative 500 basis points last year.

With the support of the integrated policy approach, the underlying trend of inflation improved, the central bank said. The MPC added that the effect of the earthquake-driven supply-demand imbalances on inflation is closely monitored.

Earlier this month, official data showed that consumer price inflation slowed to a 16-month low 43.68 percent in April from 50.51 percent in March. Nonetheless, inflation remained at an elevated level.

Policymakers reiterated that the bank will continue to use all available instruments decisively until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved in pursuit of the primary objective of price stability.

The CBRT will implement Liraization Strategy in order to create an institutional basis for permanent and sustainable price stability, the bank said in a statement.

“The consensus view points to the need for normalization in the conduct of monetary policy given the narrowing room for muddling through with continued pressure on reserve,” Muhammet Marcan, an economist at ING, said.

“In this regard, whether the new administration after the second round of the presidential elections is to change/revise the new economy model will be a key issue for watchers of the Turkish economy.”

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