The Central Bank of the Republic of Turkey (CBRT) on Thursday extended its current pause and decided to keep its key interest rate unchanged as the economy rebounds after the coronavirus pandemic.
At the seventh meeting of the year, the bank’s Monetary Policy Committee (MPC) left its one-week repo rate at 8.25% for a second month, in line with the forecasts of economists.
The bank had halted a nearly yearlong easing cycle last month against a background of rising inflation. It said on Thursday that the recent increase in inflation meant there were risks it could overshoot its year-end projection.
Last month’s decision to leave rates unchanged surprised analysts, who had forecast a 25-basis point rate cut in June. This month, all 12 economists in a Reuters poll forecast that rates would be kept steady due to the upward pressure on inflation. Surveys by Bloomberg and Anadolu Agency (AA) also forecasted no changes in rates.
The bank had previously cut its policy rate in nine consecutive meetings from a level of in a muscular bid to stimulate the economy and more recently to counter the economic downturn brought on by the coronavirus outbreak.
In a statement following its monetary policy committee meeting, the bank said it maintained the view that demand-driven disinflationary effects will become more prevalent in the second half of the year.
“But risks on the end-year projection are considered to be on the upside due to recent realizations in inflation,” it said.
Inflation climbed more than expected to 12.62% year-on-year in June, official data showed, after it edged up to 11.39% a month earlier. Month-on-moth, consumer prices rose 1.13%.
In April, the central bank trimmed its year-end inflation forecast to 7.4% from a previous forecast of 8.2%.
The bank made it clear that maintaining a sustained disinflation process is a key factor for achieving lower sovereign risk, lower long-term interest rates and stronger economic recovery.
“Keeping the disinflation process on track with the targeted path requires the continuation of a cautious monetary stance,” it added.
Pointing to coronavirus developments which substantially weakened global growth in the second quarter, the bank stressed that despite a partial recovery in global economic activity in the third quarter thanks to normalization steps, uncertainty in the global economic recovery remains high.
“Although tourism revenues declined due to the pandemic, easing travel restrictions are expected to contribute to a partial improvement,” it noted.
The bank also said the recovery in exports of goods and low commodity prices will support the current account balance in the coming periods.
