Central Bank keeps interest rate constant for the second time in a row

* Photo: Anadolu Agency (AA) - Archive

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The Central Bank of the Republic of Turkey Monetary Policy Committee convened yesterday (May 6) and has decided to keep the policy rate (one-week repo auction rate) unchanged at 19 percent.

Chaired by Central Bank Governor Şahap Kavcıoğlu, the Monetary Policy Committee (MPC) has released a statement after its meeting.

"Taking into account the high levels of inflation and inflation expectations, the current monetary policy stance will be maintained until the significant fall in the April Inflation Report forecast path is achieved," the Central Bank's Monetary Policy Committee has said in the statement.

As reported by the state-run Anadolu Agency (AA), last week, the Central Bank raised its year-end inflation forecast to 12.2 percent for this year.

"Inflation is expected to fluctuate between 10 percent and 14.4 percent through the end of 2021," it said. 

The bank also raised the inflation forecast for 2022 to 7.5 percent, up from 7 percent, while keeping its target of 5 percent for 2023.

According to the latest data from the Turkish Statistical Institute (TurkStat), the state agency commissioned with producing official statistics on the country, Turkey's inflation rate was 17.14 percent in April 2021, up 0.95 percentage points from 16.19 percent in March.

'Until inflation falls to 5 percent target...'

"The Central Bank will continue to decisively use all available instruments in pursuit of the primary objective of price stability," the Bank has said, stressing that "the policy rate will be determined at a level above inflation to maintain a strong disinflationary effect until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is reached."

The Monetary Policy Committee has pointed out that consumer loans, along with commercial loans, exhibit a milder course and that the durability of this development is monitored for macroeconomic stability.

"Despite the rise in commodity prices, the strong upward trend in exports, the significant fall in gold imports and the slowdown in credit amid the tightening of financial conditions support the expected improvement in the current account balance," it has stated further.

The course of interest rates in Turkey

After Central Bank Governor Murat Çetinkaya was removed from office and Murat Uysal was appointed in his place, the Monetary Policy Committee took its first decision of interest rate cut in July 2019 and cut the policy rate from its current level of 24 percent to 19.75 percent.

After its meeting on September 12, 2019, the Monetary Policy Committee of the Central Bank lowered the policy rate to 16.50 percent. The Committee reduced the interest rate to 14 percent on October 24, to 12 percent on December 12 and to 11.25 percent on January 16, 2020.

On February 19, the Central Bank decreased the policy interest rate from 11.25 percent to 10.75 percent. In the meeting on March 17, the policy interest rate was reduced from 10.75 to 9.75 percent.

In its meeting on April 22, the Bank decreased the policy interest rate from 9.75 to 8.75 percent. On May 21, the interest rate was further reduced to 8.25 percent. The Bank kept this rate unchanged in June, July and August.

In its September meeting, the Monetary Policy Committee of the Central Bank decided to increase the policy rate (one-week repo auction rate) from 8.25 to 10.25 percent. The interest rate was kept constant on October 22.

On November 7, 2020, Naci Ağbal was appointed as the new Governor of the Central Bank of Turkey by a Presidential decree.

The Central Bank announced an interest rate hike, raising the policy rate from 15 to 17 percent in December 2020. It kept the policy rate (one-week repo auction rate) constant at 17 percent in January 2021.

At the meeting on March 18, the policy rate was increased from 17 to 19 percent. Following this move, Central Bank Governor Naci Ağbal was dismissed by a Presidential decision and replaced by Şahap Kavcıoğlu.

In the first meeting on April 15 after this appointment, the interest rate was kept unchanged at 19 percent, a rate which was also kept steady in the following meeting of the Monetary Policy Committee on May 6. (EKN/SD)