The Turkish central bank said on Thursday it would adjust its policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook as it held the rate at 46%, in line with expectations.
The Central Bank of the Republic of Türkiye (CBRT) also said it decided to maintain its overnight lending rate and the overnight borrowing rate at 49% and 44.5%, respectively.
"The underlying trend of inflation declined in May. Leading indicators suggest that this decline continues in June. Data for the second quarter points to a slowdown in domestic demand," the bank said after its policy-setting committee meeting.
It also said that the potential effects of the geopolitical developments and the rising protectionism in global trade on the disinflation process "are closely monitored."
However, it cautioned that inflation expectations and pricing behavior "continue to pose risks to the disinflation process."
Annual inflation in Türkiye edged down to 35.4% in May, touching the lowest level seen since late 2021 and less than half of the rate seen in mid-2024, according to the official data.
The Turkish lira was widely unchanged, gaining around 0.17% following the committee meeting and trading at 39.55 per U.S. dollar at 2:35 p.m. local time.
The CBRT hiked rates by 350 basis points in its previous meeting in April, in response to market developments and growing protectionism measures spurred by U.S. President Donald Trump's sweeping tariffs.
The bank at the time revered its short-lived easing cycle that followed a long-tightening drive that had commenced in 2023 amid a shift to more conventional monetary policy.
From May 2023 until March last year, the bank raised the rate from 8.5% to 50% and then kept it constant until its meeting last December, when it lowered the rate 250 basis points to 47.5%.
The bank then cut the benchmark rate at the next three meetings from 47.5% to 42.5%. In the April meeting, in a surprise move, the bank raised the rate by 350 basis points to 46%.
On Thursday, the bank said that the policy rate will be determined "in a way to ensure the tightness required by the projected disinflation path, taking into account realized and expected inflation, and the underlying trend."
It provided less clarity on the path of potential easing in the months ahead as it pledged to focus on the inflation outlook. However, the bank dropped the vow for policy "to be tightened" in case of deterioration in inflation.
"The committee will adjust the policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook. All monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen," the CBRT said.
Markets are forecasting inflation cooling to 29.86% by the end of 2025, according to the bank's recently published Survey of Market Participants for June.
"In case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism will be supported via additional macroprudential measures. Liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively," it also noted.