Turkish cenbank holds rates, sees disinflation strengthening
Adds MPC comment on disinflation
By Ezgi Erkoyun and Ece Toksabay
ISTANBUL, July 23 (Reuters) -Turkey's central bank held its policy rate steady at 50% on Tuesday as expected and repeated it remains highly attentive to inflation risks, even as it expects disinflation to gain strength after a welcome turnaround last month.
The central bank last raised interest rates in March, by 500 basis points, and has since held steady while vowing to tighten policy more if it predicts the inflation outlook will worsen, a hawkish pledge it repeated on Tuesday.
Most analysts expect rate cuts to begin before year end, though some expect the central bank will wait longer.
Starting to see results from a year-long tightening drive, the bank said the underlying monthly inflation trend showed a notable decline in June, though added that it could rise "temporarily" this month due to one-off factors.
"The decisiveness regarding tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations," its monetary policy committee said.
"As a result, the disinflation process will gain strength."
Since June last year, the bank has raised its policy rate TRINT=ECI by a total 4,150 basis points in a tightening cycle that reversed years of monetary stimulus supported by President Tayyip Erdogan to boost economic growth.
Turkey's annual inflation rate began what is expected to be a sustained fall in June, dipping to 71.6%. Officials and analysts predict a gradual decline in the remainder of 2024 with economists forecasting a year-end level of around 43%.
"Leading indicators suggest that monthly inflation will rise temporarily in July due to adjustments in administered prices and taxes as well as supply-side factors in unprocessed food prices," the bank said.
In a Reuters poll last week, all 26 economists expected the central bank to hold rates this month and not to ease until the next quarter. The policy rate was expected to drop by 500 basis points to 45% by the end of 2024.
No significant easing in rates was expected to come until next year, the poll showed, with the central bank forecast to reduce rates by 2,250 basis points to 27.50% by end-2025.
S&P Global Market Intelligence said in a note that it expects "a cautious cutting cycle" to begin in December.
Many Turks are struggling with eroding living standards after six years of soaring inflation, combined with a sharp clampdown on credit over the last year, which has left them paying the price for past economic missteps.
Before he backed last year's policy reversal, Erdogan had championed a low rates policy for five years to lift economic growth despite soaring prices, which led to the lira shedding more than 85% to the dollar since 2018.
The lira TRYTOM=D3 was little changed at 32.9450 against the dollar after the rates decision.
The central bank added that the monetary transmission mechanism will continue to be supported via additional macroprudential measures, while sterilization will be implemented effectively by adding to the tool set whenever needed.
Reporting by Ezgi Erkoyun and Ece Toksabay;
Writing by Daren Butler;
Editing by Jonathan Spicer
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
