ISTANBUL, Sept 19 (Askume) – Turkey’s central bank kept its key interest rate steady at 50% for a sixth consecutive month on Thursday, in line with expectations, and said it remained deeply vigilant about inflation risks but warned policy tightening could be lifted.
The change in language suggests a rate cut will eventually come, as the central bank said it would “use monetary policy tools effectively in the event of a sharp and sustained decline in inflation.”
The bank has said in previous statements that its monetary policy stance would “tighten” if inflation fell that far.
The lira was little changed at 34.03 against the dollar after the monetary policy committee’s statement. Istanbul’s main stock index (.XU100) rose 2%.
The bank last raised its policy rate (TRINT=ECI) in March, raising rates by 500 basis points to end an aggressive tightening cycle that began last June.
It has kept the repo rate steady for a week and promised to tighten it further if the situation worsens. A Askume poll showed that analysts expect the bank to cut interest rates for the first time around November.
The survey suggests this could happen as early as October or late next year, and the decline could be more than 20% by the end of 2025.
“A Vigilant Harvest Cycle”
“The success of the anti-inflation program so far has reduced the pressure on the central bank to start cutting interest rates ahead of the deadline,” said Andrew Birch, associate director of economics at S&P Global Market Intelligence.
He said his base case is that the bank will begin a “cautious rate cutting cycle” in December 2024.
Annual inflation fell from a peak of 75% in May to below 52% in August. The government expects the ratio to fall below 42% by the end of this year.
The central bank has raised its policy rate by 4,150 basis points through June 2023, reversing years of monetary stimulus backed by President Tayyip Erdogan to boost economic growth.
The U-turn in policy, which dramatically curbs debt and economic growth, is aimed at ending years of a cost-of-living crisis and ongoing currency collapse.
In an interview with Askume earlier this month, Vice President Hatice Calhan said Turkey’s fiscal policy would be key in ensuring that inflation maintains its downward trend.
A substantial increase in the central bank’s foreign exchange reserves has resulted in excess liquidity, with overnight interest rates falling from 53% to 47.4% over the past 10 days, also, some banks have lowered long-term deposit and loan interest rates to ease inflation expectations.
