MNI CBRT Review - April 2024: Unchanged But Hawkishness Retained
The Central Bank of Turkey left its one-week repo rate unchanged at 50%, as was widely expected.
Executive Summary:
- The Central Bank of Turkey left its one-week repo rate unchanged at 50%, a decision in-line with unanimous sell-side consensus.
- The policy statement offered few surprises, maintaining its hawkish stance by reiterating that policy will be tightened in case of a substantial deterioration in inflation.
- Furthermore, the Bank stated that its tight monetary stance will be maintained until a significant decline in the underlying trend of inflation is observed.
See the full review, with a summary of sell-side analyst views, here:
The CBRT kept its tightening bias intact and reiterated that the current monetary policy stance will be maintained until there is a "significant" and "sustained" decline in inflation momentum is achieved, while inflation expectations must first converge to the projected forecast range. The forward guidance was also hawkish once again as the Bank kept the door open for further rate hikes by stating that monetary policy stance will be tightened in case of a significant and persistent deterioration in inflation dynamics – this guidance was maintained from the previous two editions of the policy statement.
In addition to the rate decision itself, the CBRT announced that in order to strengthen the monetary transmission mechanism, increase the share of Turkish lira deposits and support the transition from FX-protected deposits (KKM) to Turkish lira deposits, it will adjust the interest rate ceiling on reserve requirements. Specifically, the upper limit of the remuneration rate applied to the required reserves maintained for KKM accounts is set at 60% of the policy rate, and that for Turkish lira deposits set at 80% of the policy rate. The regulation change may incentivise local banks to increase Turkish lira deposit rates to benefit from interest rates paid by the CBRT on required reserves.