By Joshua Kirby
The Turkish central bank kept rates on hold for a third meeting straight, setting its stall on lower inflation in the coming months.
The bank's policy committee said Thursday that it would leave its benchmark one-week repo rate at 50.00%, a decision widely expected by economists. The bank last year embarked on a succession of rate-hikes, marking a divergence from a previous policy--encouraged by President Recep Tayyip Erdogan--of keeping rates low despite rapid price inflation in the Anatolian republic.
That new course of higher borrowing costs has yet to bring about an easing in price rises, with annual inflation hitting 75% in May. But the more orthodox policy is beginning to bear fruit and inflation is likely now to have peaked, said Bartosz Sawicki, market analyst at fintech firm Conotoxia.
"The overheated economy is finally beginning to cool down," Sawicki said in a note to clients. "Improvement in underlying price dynamics is already underway."
The central bank is similarly confident that inflation will begin to fall over the remainder of the year and into 2025. It sees the level falling to 38% by the end of the year and to 14% by the end of 2025, according to projections set out last month. The bank's medium-term aim is to bring inflation down to 5%, but it hasn't said when it expects to meet that goal.
Domestic demand is now slowing, the bank said Thursday, adding that it remains alive to risks that could lead to a new surge in inflation.
"The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed," it said.
Any loosening of monetary policy depends on the pace at which inflation eases ahead, Conotoxia's Sawicki said.
"Tackling Turkey's massive macroeconomic instabilities ... will likely require a long period of maintaining a restrictive stance," he said. "The Turkish economy is not out of the woods yet."
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
(END) Dow Jones Newswires
06-27-24 0803ET
