Turkey’s Central Bank keeps interest rates unchanged

The Central Bank of the Republic of Turkey Monetary Policy Committee convened today (July 14) and has decided to keep the policy rate (one-week repo auction rate) constant at 19 percent.

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

According to the Central Bank, "domestic economic activity is strong" in Turkey. "While domestic demand has slightly decelerated in the second quarter due to pandemic restrictions and the tightening in financial conditions, external demand remains strong," it has explained.

Noting that the "acceleration of domestic vaccination rollout facilitates the recovery in services and tourism sectors, which have been adversely affected by the pandemic," the Central Bank has indicated that "commercial loan growth exhibits a mild course."

According to the statement, the Central Bank is of the opinion that "the current account is expected to post a surplus in the rest of the year due to the strong upward trend in exports, and the strong progress in the vaccination program stimulating tourism activities."

However, underlining that "high levels of inflation expectations continue to pose risks to the pricing behavior and inflation outlook", the Bank has decided to keep the interest rate unchanged at 19 percent:

Taking into account the high levels of inflation and inflation expectations, the current tight monetary policy stance will be maintained decisively until the significant fall in the April Inflation Report's forecast path is achieved. Accordingly, the Monetary Police Committee has decided to keep the policy rate unchanged.

"The policy rate will continue to 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 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.

The interest rate has been kept unchanged at 19 percent by the Monetary Policy Committee of the Central Bank since then. (SD)