In its recent June 2024 meeting, the Central Bank of the Republic of Turkey (CBRT) decided to keep its policy rate, the one-week repo auction interest rate, unchanged at 50 percent. This decision was in line with market expectations, as many experts had anticipated that the rate would remain steady. Following the announcement, the dollar was trading at 32.92 TL.
The CBRT’s decision was based on several factors, including the temporary interruption in the underlying trend of monthly inflation that occurred in May. While domestic demand is slowing down, it is still at an inflationary level. Services inflation, inflation expectations, geopolitical risks, and food prices continue to pose inflationary pressures. The CBRT will continue to monitor inflation expectations and pricing behavior closely.
Although the CBRT chose to maintain the policy rate, it remains vigilant against upside risks to inflation. The bank will keep its tight monetary policy stance until there is a significant and permanent decline in the underlying trend of monthly inflation and inflation expectations align with forecasts. If inflation worsens significantly and permanently, monetary policy will be tightened further. The CBRT aims to reduce inflation through balancing domestic demand, real appreciation of the Turkish lira, and improved inflation expectations.
In the event of unexpected developments in credit and deposit markets, the CBRT will support the monetary transmission mechanism with additional macroprudential measures. The bank will monitor liquidity developments closely and use sterilization tools effectively when necessary. Policy decisions will be made with the goal of reducing inflation and achieving a 5 percent target in the medium term.
Overall, the CBRT remains committed to its primary goal of price stability. The board will continue to closely monitor inflation indicators and trends, using all tools at its disposal to achieve this objective. The bank aims to provide monetary and financial conditions that will lead to disinflation in the second half of the year. By maintaining a determined stance in monetary policy and adapting to changing market conditions, the CBRT seeks to create a stable economic environment for Turkey.
