The Central Bank of the Republic of Turkey (CBRT) on Thursday kept its key policy rate – the one week repo rate – unchanged at 14%, in line with expectations.
The bank said that the comprehensive review of the policy framework is being conducted with the aim of prioritizing Turkish lira in all policy tools of the lender in order to create a foundation for sustainable price stability.
It underlined that capacity utilization and other leading indicators show that domestic economic activity remains strong, with the help of robust external demand.
New variants of the coronavirus and increasing geopolitical risks keep the downside risks to global economic activity alive, the bank said, adding that global demand, commodity prices, supply constraints and transportation costs have led to rise in producer and consumer prices globally.
"The unchanged repo rate marks the beginning of less aggressive monetary policy," Ima Sammani, FX market analyst at Monex Europe, told Reuters.
"The addition of the phrase around prioritizing the Turkish lira suggests to markets the central bank is finally admitting to having an FX target, which is welcomed in Turkish assets," Sammani added.
All economists surveyed by Anadolu Agency (AA) predicted that the policy rate will be kept constant at 14%.
Foreign financial institutions also expected that the bank would keep interest rates stable.
Societe Generale expected no change in interest rate, while Unicredit forecasted the bank will avoid a decision that will trigger the depreciation of the Turkish lira, keeping the policy rate at 14%.
Bank of America also expects the bank to keep the policy rate constant until the end of the first quarter.
Earlier, Treasury and Finance Minister Nureddin Nebati said inflation would reach its peak in January, however, there would be a decrease as of May with the developments in the world and a decline in food and energy prices.
Turkey posted a 36% annual hike in consumer prices in 2021, the highest in 19 years.
Nebati also voiced support for the CBRT’s decision to monitor the effect of the easing in the first quarter.
"I don't know how the central bank will take a decision. In my opinion, we should see January, February and March," he said.
The volatility is high in global markets due to inflation concerns, faster tightening expectations in monetary policies, rise in bond interest rates, and increasing geopolitical risks.
While the expectations that the central banks will tighten their monetary policies more rapidly continue to affect the investor risk perception negatively, the increasing tension between Russia, the U.S. and NATO over Ukraine is also at the center of the global agenda.
At its last meeting on Dec. 16, the central bank cut its benchmark one-week repo rate by 100 basis points from 15% to 14% again in line with market forecasts, meaning that since September 2021, the key rate has been lowered by 500 basis points.
