The Central Bank of the Republic of Türkiye (CBRT) has held interest rate steady at 50 percent for the fifth consecutive month, aligning with market expectations. This decision comes amidst concerns about potential financial challenges and economic risks that could arise from a rate cut. The Turkish central bank’s decision to maintain the current rate reflects its ongoing commitment to combat inflation, which has been a major concern for the Turkish economy.
The bank had previously raised the policy rate by 500 basis points to 50 percent in March, citing a deterioration in the inflation outlook. Since then, the CBRT has maintained the benchmark rate, vowing to act if inflation pressures escalate.
The CBRT’s recent tightening cycle, which began in June 2023, has seen a gradual increase in the policy rate by 4,150 basis points. This aggressive approach to monetary policy was implemented following a shift in economic policy after the presidential and parliamentary elections.
Inflationary risks remain elevated
Despite recent declines in inflation in certain areas, the CBRT remains cautious, citing high and persistent services inflation, elevated inflation expectations, and geopolitical uncertainties as ongoing inflationary risks. The bank reiterated its commitment to maintaining the current level of monetary tightening, acknowledging the lagged effects of its policies.
The CBRT’s announcement emphasized that the current monetary policy stance will continue until the medium-term inflation target of 5 percent is achieved. This strategy aims to ensure price stability and sustainable economic growth.
Turkey’s Consumer Price Index (CPI) rose by 3.23 percent in July, marking the lowest annual increase in nine months at 61.78 percent, according to official data released by the Turkish Statistical Institute (TÜİK).
Balancing inflation control and economic risks
The CBRT’s decision to hold the policy rate steady for the fifth consecutive month highlights its commitment to a cautious approach to monetary policy, balancing the need to control inflation with the potential risks associated with a rate cut. Moreover, the bank’s focus remains on achieving its medium-term inflation target, signaling its determination to maintain price stability in the Turkish economy.
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