Interest Rate Decision
The Central Bank of the Republic of Türkiye (CBRT) has decided to keep its policy interest rate unchanged at 50%. This move aligns with expectations and reflects the bank’s ongoing vigilance regarding inflation risks.
Disinflationary Trend
Recent data shows promising signs of disinflation. The CBRT reported a notable decrease in the underlying monthly inflation trend for June. However, the bank anticipates a temporary rise in July due to adjustments in administered prices, taxes, and supply-side factors affecting unprocessed food prices.
Monetary Policy Stance
The CBRT remains committed to maintaining a tight monetary policy until there is a significant and sustained reduction in the underlying inflation trend. The bank has pledged to further tighten policy if inflation conditions worsen significantly.
Economic Context
Since June of the previous year, the CBRT has increased its policy rate by 4,150 basis points. Türkiye’s annual inflation rate, which began to decline in June, currently stands at 71.6%. The central bank and analysts expect this downward trend to continue, with a projected year-end inflation rate around 43%.
Future Projections
A recent Reuters poll revealed that economists expect the CBRT to hold rates steady this month and possibly start easing in the next quarter. The policy rate is anticipated to decrease by 500 basis points to 45% by the end of 2024, with further reductions projected for 2025.
Market Reaction
Following the rate decision, the Turkish lira remained relatively stable at 32.94 against the dollar. The CBRT’s latest survey projects Türkiye’s annual inflation rate to fall to 42.95% by the end of the year, improving from the earlier estimate of 43.52%. This projection supports the ongoing disinflationary process.