MNI CBRT WATCH: Rates Seen On Hold, Stance Still Hawkish

The Central Bank of Turkey is again expected to hold its key one-week repo interest rate when it meets on Thursday, but with upside inflation risks persisting and year-end expectations stuck above 40%, the Monetary Policy Committee is likely retain its hawkish stance.

The CBRT hiked rates to 50% in March with inflation already at 68.5%. But while May’s 78.5% figure is regarded as the peak, the Bank’s decision to revise its inflation target for the year up two percentage points to 38% - while leaving its 2025 and 2026 projections unchanged - suggests there is little room for manoeuvre. (See MNI EM INTERVIEW: CBRT Inflation Target May Go To 45% - Demiralp)

Governor Fatih Karahan’s orthodox approach to fighting soaring price pressures continues to draw support from influential finance minister Mehmet Simsek, and he is likely to repeat not only that the Bank remains highly attentive to inflation risks, but that he will decisively pursue a tight monetary policy stance until sustained price stability is achieved.

Nevertheless, the Bank is confident that, barring any shocks, policy is working, with the gradual moderation of domestic demand and a positive contribution from base effects in the second half of the year seen supporting a persistent decline in underlying inflation. (See MNI EM INTERVIEW: CBRT On Track To Hit Target- Ex-Deputy Governor)

Having taken steps to further simplify Turkey’s macroprudential framework last month, it would not be a surprise were the CBRT to announce more measures aimed at sterilising liquidity and discouraging too much lending.