Turkey tightens monetary policy but holds rate steady

Reuters/Umit Bektas

Turkey will continue to maintain a tight monetary stance until a “significant and sustained” decline in monthly inflation is seen, the country’s central bank said.

The bank’s monetary policy committee kept the key policy rate steady at 50 percent, adding it remains “highly attentive to inflation risks”. 

The central bank raised interest rates by 500 basis points to 50 percent in March following a deteriorating inflation outlook.

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“Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen,” the committee said in a statement.

The bank is targeting disinflation in the second half of the year through through moderation in domestic demand, real appreciation in the Turkish lira, and improvement in inflation expectations.

The central government aims to reach the 5 percent inflation target in the medium term by making necessary monetary and financial decisions, the committee said.

The annual inflation rate increased to 68.5 percent in March, beating the 67.07 percent recorded a month earlier, official data showed.

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Central bank governor Fatih Karahan reiterated last month that the country will see disinflation in the second half of the year.

“Our determined stance on monetary policy will enable us to successfully achieve our targeted disinflation path,” he said.

Global rating agency Fitch has already upgraded Turkey’s long-term foreign currency issuer default rating to “B+” from “B”, driven by greater-than-expected monetary policy tightening to control inflation.

In February, finance minister Mehmet Şimşek said the country’s measures to curb inflation will prove effective, which should decline in the second half of the year.

The medium-term programme, launched in September 2023, intends to achieve price stability and single-digit inflation, he said.