Turkish central bank to leave rates unchanged for 6th month

Turkey’s central bank is expected to hold its policy rate unchanged for a sixth meeting this week, surveys show, extending a pause in the face of a global tightening cycle and rampant inflation.

The one-week repo rate has been kept at 14% since January when the Central Bank of the Republic of Turkey (CBRT) paused an easing cycle after its cuts totaling 500 basis points since September last year.

Most economists expect the central bank to leave the benchmark rate unchanged this week as well, while they also see the policy rate remaining steady through year-end.

The bank last month defended its policy decision saying it expects disinflation to start, citing base effects and an expected resolution of an ongoing regional conflict, an apparent reference to Russia’s war in Ukraine, among other factors.

Fueled by soaring food and energy prices, Turkey’s annual inflation rate rose at a lower-than-expected pace in May but still jumped to a 24-year high of 73.5%.

All but one of 15 economists polled by Reuters expect the monetary authority to maintain its benchmark rate at the policy-setting meeting this week. One expected a cut to 13%.

All nine economists polled expect the policy rate to remain at the same level by year-end.

President Recep Tayyip Erdoğan said earlier this month that his government would continue lowering interest rates rather than increasing them.

Erdoğan reiterated his opposition to higher borrowing costs, which he says only makes “the rich richer and the poor poorer.”

“This government will not hike interest rates, no one should expect this from us. On the contrary, it will continue cutting rates,” Erdoğan.

The president redoubled his commitment to boosting production, exports and employment with a low-rates policy. He again promised a current account surplus that will eventually steady the Turkish lira and cool inflation.

Erdoğan last week said Turkey would be relieved of the burden caused by inflation and will leave behind its problems from February-March next year.

Under the current economic program, the government wants the private sector to make investments by taking advantage of low rates to increase production, exports and employment.

Turkey’s consumer price index has emerged since last autumn as the Turkish lira weakened after the central bank in September embarked on the easing cycle.

Prices have been increasing despite tax cuts on basic goods and government subsidies for utility bills to ease the burden on household budgets.

The central bank late last month revised up its inflation forecasts for this year and the next, mainly because of the rise in commodity prices and supply issues.

It had forecast that annual inflation will peak at around 70% by June before declining to near 43% by year-end and falling to single digits by end-2024.

The central bank will announce this month’s rate decision on Thursday.

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