Turkey’s central bank held its policy rate unchanged for a seventh straight month on Thursday, as it again emphasized its expectation that the disinflation trend was expected to begin.
The Monetary Policy Committee (MPC), led by Governor Şahap Kavcıoğlu, kept the one-week repo rate at 14%, in line with the forecasts of most economists.
The move came amid rampant inflation that neared 79% last month and an ongoing global tightening cycle. The bank cited supply and demand imbalances and an increase in energy prices among the factors behind faster inflation.
The key policy rate has been steady since January when the Central Bank of the Republic of Turkey (CBRT) paused an easing cycle after its cuts totaling 500 basis points since September last year.
In a statement accompanying the decision, the central bank said its macroprudential policies would be strengthened if needed, citing an already visible decline in credit growth.
“The committee expects the disinflation process to start on the back of measures taken and decisively implemented for strengthening sustainable price and financial stability along with the resolution of the ongoing regional conflict,” it said.
In addition, the bank said it will continue to use all available instruments decisively within the framework of its “liraization strategy” until strong indicators point to a permanent fall in inflation and the medium-term 5% target is achieved.
In a Reuters poll, all 18 economists expected the one-week repo rate to remain unchanged. All but one analyst surveyed by Bloomberg saw the bank holding the rate steady.
President Recep Tayyip Erdoğan last month vowed that his government would continue lowering interest rates rather than increasing them.
Erdoğan is known for his opposition to higher borrowing costs, which he says only makes “the rich richer and the poor poorer.”
The government has been affirming its commitment to boosting production, exports and employment with a low-rates policy, and has promised a current account surplus that is said to eventually steady the Turkish lira and cool inflation.
Erdoğan has said Turkey would be relieved of the burden caused by inflation and will leave behind its problems from February-March next year.
Under the current economic program, the government wants the private sector to make investments by taking advantage of low rates to increase production, exports and employment.
The statement on Thursday included minor changes in comparison to the note of the bank’s June policy-setting meeting.
The bank has turned further negative about its views on the global outlook, pointing out a higher likelihood of a global recession.
It mentioned “rigidities in the labor markets” in addition to rising energy prices and imbalances between supply and demands as the factors that lead to a longer-than-expected rise in inflation.
It stated stronger domestic job creation in comparison to peer economies while reiterating the continuation of robust growth performance thanks to strong external demand.
It said it observed the supportive impact of the tourism sector on the current account, though it was quite concerned about risks from higher energy prices and deteriorating growth outlook in main trade partners.