Turkish cenbank holds rates, sees disinflation strengthening By Reuters

By Ezgi Erkoyun and Ece Toksabay

ISTANBUL (Reuters) -Turkey’s central bank held its policy rate steady at 50% on Tuesday as expected and repeated it remains highly attentive to inflation risks, even as it expects disinflation to gain strength.

The bank last raised interest rates in March, by 500 basis points and has since held steady while vowing to tighten policy more if it predicts the inflation outlook will worsen, a hawkish pledge it repeated on Tuesday.

Starting to see some results from policy tightening that began more than a year ago, the central bank said the underlying monthly inflation trend showed a notable decline in June, though added that it could rise this month.

„Leading indicators suggest that monthly inflation will rise temporarily in July due to adjustments in administered prices and taxes as well as supply-side factors in unprocessed food prices,” its monetary policy committee said.

It said the monetary transmission mechanism will continue to be supported via additional macroprudential measures, while sterilization will be implemented effectively by adding to the tool set whenever needed.

Since June last year, the bank has raised its policy rate by a total 4,150 basis points in a tightening cycle that reversed years of monetary stimulus supported by President Tayyip Erdogan to boost economic growth.

Turkey’s annual inflation rate began what is expected to be a sustained fall in June, dipping to 71.6%. Officials and analysts predict a gradual decline in the remainder of 2024 with economists forecasting a year-end level of around 43%.

In a Reuters poll last week, all 26 economists expected the bank to hold rates this month and to not ease until the next quarter. The policy rate was expected to drop by 500 basis points to 45% by the end of 2024.

The lira was little changed at 32.9450 against the dollar.

Many Turks are struggling with eroding living standards after six years of soaring inflation, combined with a sharp clampdown on credit over the last year, which has left them paying the price for past economic missteps.

Before he backed last year’s policy reversal, Erdogan had championed a low rates policy for five years to lift economic growth despite soaring prices, which led to the lira shedding more than 85% to the dollar since 2018.

No significant easing in rates was expected to come until next year, the Reuters poll showed, with the central bank forecast to reduce rates by 2,250 basis points to 27.50% by end-2025.