Turkish central bank’s Monetary Policy Committee says it decided to keep its policy rate constant at 14 percent, putting on hold a rate-cutting policy that has reduced borrowing costs by 5 percentage points since September.

Leading indicators show that domestic economic activity remains strong, according to Turkiye's central bank.
Leading indicators show that domestic economic activity remains strong, according to Turkiye's central bank. (Reuters)

Turkiye's central bank has kept its one-week repo rate – also known as the policy rate – steady at 14 percent in line with market forecasts.

A comprehensive review of the policy framework is being conducted with the aim of prioritising Turkish lira in all policy tools of the central bank in order to create a foundation for sustainable price stability, the central bank said on Thursday.

"Increase in inflation in the recent period has been driven by distorted pricing behaviour due to unhealthy price formations in the foreign exchange market, supply side factors such as the rise in global food and agricultural commodity prices, supply constraints, and demand developments," the bank said in a statement.

It came after the bank's first Monetary Policy Committee meeting this year.

The committee expects the disinflation process to begin in the wake of measures taken for sustainable prices and financial stability, along with "the decline in inflation owing to the base effect".

The bank underlined that capacity utilisation and other leading indicators show that domestic economic activity remains strong, with the help of robust external demand.

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Consumer prices in focus

New coronavirus variants and increasing geopolitical risks keep the downside risks to global economic activity alive, the bank said.

It added that global demand, commodity prices, supply constraints and transportation costs have led to rise in producer and consumer prices globally.

Earlier, Treasury and Finance Minister Nureddin Nebati had said that inflation would reach its peak in January, but there would be a decrease as of May thanks to developments in the world and decline in food and energy prices.

Turkiye posted a 36 percent annual hike in consumer prices in 2021, the highest in 19 years.

At its last meeting on December 16, the Central Bank cut its benchmark one-week repo rate by 100 basis points from 15 percent to 14 percent in line with market expectations. 

Since September 2021, the key rate has been lowered by 500 basis points.

Economists surveyed by Anadolu Agency, as well as foreign financial institutions, had predicted the policy rate would be kept constant at 14 percent.

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Source: TRTWorld and agencies