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MNI CBRT WATCH: On Hold, "Temporary" Inflation Rise Expected

MNI (LONDON) - The Central Bank of the Republic of Turkey left key interest rates unchanged on Tuesday, and said that while underlying inflation registered a “notable” decline last month it remains both highly attentive to inflation risks and ready to act “decisively” to reach the 5% medium-term inflation target. (See MNI EM CBRT WATCH: 'Cautious' Turkey CenBank To Hold Rates At 50%)

A “relatively limited”, temporary increase in monthly inflation is expected in July due to a combination of tax, administered price and supply-side adjustments which are “relatively beyond the control of monetary policy,” the CBRT said in a statement.

Despite a slowdown in domestic demand it is still at inflationary levels, and price pressures are still supported by sticky services prices, geopolitical risks, food prices and expectations. 

Having held its policy rate at 50% since March, the Monetary Policy Committee noted that a tight monetary stance will be maintained “until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range.”

As in previous months, the Committee reiterated that the monetary policy stance will be tightened “in case a significant and persistent deterioration in inflation is foreseen,” and that “the decisiveness regarding tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations.”

However, in contrast to June’s decision statement, which said that  “Consequently, disinflation will be established in the second half of the year,” the July decision concluded that “Consequently, the disinflation process will gain strength.” (See MNI EM INTERVIEW: CBRT To Cut Rates From Q4- Ex-Treasury Official)

Having adjusted its macroprudential framework late last week, the CBRT said it will continue to assess liquidity conditions closely. “Sterilisation will be implemented effectively by also enriching the toolset whenever needed,” the statement added.

MNI London Bureau | +44 20 3983 7894 | luke.heighton@marketnews.com
MNI London Bureau | +44 20 3983 7894 | luke.heighton@marketnews.com

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