Turkiye’s central bank maintains policy rate at 8.5%

The Central Bank of the Republic of Turkiye’s Monetary Policy Committee has reaffirmed its decision to keep the policy rate (one-week repo auction rate) unchanged at 8.5 per cent, despite escalating global economic uncertainties and potential financial instability from successive bank failures.

Although recent data indicate stronger economic activity than expected, concerns about recession persist in developed economies due to escalating geopolitical risks, interest rate hikes, and emerging conditions threatening financial stability. The high level of producer and consumer inflation continues internationally, and the effects of this on inflation expectations and global financial markets are under stringent observation, the Committee said in a statement.

Turkiye’s central bank has maintained the policy rate at 8.5 per cent amid growing global economic uncertainties and potential financial instability.
Despite relatively stronger economic activity and a quick recovery from the earthquake, it remains cautious due to risks from geopolitical tensions, high inflation and recession concerns in developed economies.

Before the devastating earthquake earlier this year, leading indicators suggested a robust domestic demand compared to foreign demand and an uptick in the growth trend for the first quarter (Q1) of 2023. Recent data, however, show a quicker-than-expected economic recovery in the earthquake-hit zones, mitigating any permanent impact on the performance of the Turkish economy in the medium term.

Contributions from the tourism sector to the current account balance have been stronger than anticipated, whilst high energy prices and weak economic activity in key trading partners continue to pose risks to the current account balance. The Committee emphasised the importance of a sustainable current account balance for maintaining price stability.

“The rate of credit growth and allocation of funds for real economic activity purposes are closely monitored. As announced in the 2023 Monetary Policy and Liraization Strategy document, the Committee will continue to decisively use the tools supporting the effectiveness of the monetary transmission mechanism and the entire policy toolset, particularly funding channels, will be aligned with liraization targets. The Committee will prioritise the creation of supportive financial conditions in order to minimise the effects of the disaster and support the necessary recovery,” the statement added.

Inflation trends are showing signs of improvement, thanks to the integrated policy approach, although the impact of earthquake-induced supply-demand imbalances on inflation is closely scrutinised. The Committee resolved to maintain the policy rate to sustain the growth momentum in industrial production and the positive trend in employment post-earthquake. The current monetary policy stance was deemed adequate to facilitate recovery whilst preserving price and financial stability.

Fibre2Fashion News Desk (KD)

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