The Turkish central bank left its key policy rate, the one-week repo auction rate, at 37% on Thursday, keeping it unchanged for the fifth consecutive meeting as it cited that elevated energy prices pose "upward risk to inflation outlook."
The bank also maintained its overnight lending rate at 40% and borrowing rate at 35.5%, according to a statement from the Monetary Policy Committee (MPC).
"Despite monthly fluctuations, recent inflation figures and leading indicators suggest that the underlying trend of inflation is decelerating," the Central Bank of the Republic of Türkiye (CBRT) said.
It went on to say that data on economic activity, as well as the limited pass-through of supply shocks to domestic prices, "confirm the weakness in domestic demand."
However, it warned that "elevated energy prices amid geopolitical developments pose an upward risk to the inflation outlook."
The bank recently returned to funding the market through its regular one-week repo auctions after suspending them on March 1 for nearly six months.
Prior to the meeting on Thursday, there were expectations that the bank might move to lower the borrowing costs, although the officials have emphasized that the disinflation process remains the priority.
Türkiye, as an energy-importing country, has been exposed to volatility in oil and gasoline prices, with Brent prices topping $100 per barrel for the first time in weeks on Wednesday.
On Sunday, when presenting the new Medium-Term Program (MTP), Vice President Cevdet Yılmaz said that the U.S.-Iran war is projected to have added 7 percentage points to the inflation forecast for this year. The inflation forecast was lifted to 28.4%.
The inflation rate in the country decreased to 31.51% in August from 31.75% in July, according to official data.
"The impact of geopolitical developments on the inflation outlook through the cost channel, economic activity and expectations is closely monitored," the bank said.
The central bank also reiterated that the tight monetary policy stance "will be maintained until price stability is achieved," and that it "will strengthen the disinflation process through demand, exchange rate, and expectation channels."
"The committee will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets," it also said.
It also once again noted that monetary policy decisions are made prudently and "on a meeting-by-meeting basis with a focus on the inflation outlook."
"In case of a significant and persistent deterioration in the inflation outlook, the monetary policy stance will be tightened," the statement said.
The committee also reiterated that "it remains highly attentive to upside risks on inflation."
