Policy Rate Held Steady at 45%

The Central Bank of Turkey announced in its interest rate statement that the Board, convened under the chairmanship of Fatih Yaşar Karahan, decided to keep the policy rate at 45%. In the announcement regarding January, it was reported that the core trend of monthly inflation rose as anticipated in the inflation forecast path due to calendar-specific price and wage updates typical of the year's first month, and headline inflation recorded a limited increase. The statement emphasized that near-term indicators pointed to a continuation of the rebalancing in domestic demand. The announcement stated: "This rebalancing process is proceeding strongly in consumer goods and gold imports, but slowly in other consumption spending indicators compared to expectations. Additionally, rigidity in service prices, geopolitical risks and food prices are keeping inflation pressures alive. The Board will closely monitor inflation expectations and pricing behaviors for alignment with projections, and the effects of wage increases on inflation." The statement noted that external financing conditions, the level of reserves, the improvement in the current account and demand for Turkish lira assets continue to contribute to exchange rate stability and the effectiveness of monetary policy. It was stated: "The resolute stance in monetary policy will continue to contribute to the Turkish lira real appreciation process, which is one of the key elements of disinflation."

The statement included the following:

"The Board assessed that the policy rate will be maintained at its current level until a significant and sustained decline is achieved in the core trend of monthly inflation and inflation expectations converge towards the projected range. Should a significant and sustained deterioration in the inflation outlook be anticipated, monetary policy stance will be tightened."

"The Board will resolutely use all available tools in line with its primary objective of price stability"

The statement conveyed that the Board will continue implementing macroprudential policies in a manner that protects the functionality of market mechanisms and macrofinancial stability. Within this framework, should credit growth and deposit interest developments diverge from expectations, the monetary transmission mechanism will be supported. The statement, which noted that liquidity developments will be closely monitored to support monetary tightness and sterilization tools will be used effectively, included the following points: "The Board will determine its policy decisions taking into account the lagged effects of monetary tightening, in a manner that will provide monetary and financial conditions to reduce the core trend of inflation and reach the 5% target in the medium term. Inflation and indicators related to the core trend of inflation will be closely monitored, and the Board will resolutely use all available tools in line with its primary objective of price stability. The Board will make its decisions within a predictable, data-driven and transparent framework. The Monetary Policy Committee Meeting Summary will be published within five business days." Source