Turkey’s central bank held its benchmark policy rate unchanged for the sixth straight month on Thursday, as it reiterated its view that a disinflation process 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 topped 73% last month and an ongoing global tightening cycle. The bank cited supply shocks and an increase in energy prices because of geopolitics, 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 bank said disinflation would begin due to measures already taken, a potential end to the Ukraine conflict and favorable base effects.
"The Committee will continue to implement the strengthened macroprudential policy set decisively and take additional measures when needed," the bank said.
All but one of 15 economists in a Reuters poll expected the central bank to leave its benchmark rate unchanged. One expected a cut to 13%. The move was also in line with the expectations of most economists surveyed by Bloomberg.
The lira showed little reaction after the rate decision, standing at 17.3675 at 11:27 a.m. GMT, slightly weaker than Wednesday’s close.
Most economists expect the key interest rate to remain steady until year-end.
President Recep Tayyip Erdoğan said earlier this month 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."
"This government will not hike interest rates, no one should expect this from us. On the contrary, it will continue cutting rates," Erdoğan.
The president redoubled his commitment to boosting production, exports and employment with a low-rates policy. He again promised a current account surplus that will eventually steady the Turkish lira and cool inflation.
Erdoğan last week 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.
Two weeks ago, the government launched measures intended to harness banks and bond markets to rein in inflation and support the lira.
The level of capacity utilization and other leading indicators show robust growth at the start of the year and continued in the second quarter, the central bank also said Thursday.
Turkey’s consumer price index has surged since last autumn as the Turkish lira weakened after the central bank in September embarked on the easing cycle.
Prices have been increasing despite tax cuts on basic goods and government subsidies for utility bills to ease the burden on household budgets.
The central bank in late April revised its inflation forecasts for this year and the next, mainly because of the rise in commodity prices and supply issues.
It had forecast that annual inflation will peak at around 70% by June before declining to near 43% by year-end and falling to single digits by end-2024.