The Turkish Central Bank on Thursday kept interest rates unchanged in line with market expectations, maintaining its tight monetary policy stance.
In its fourth Monetary Policy Committee (MPC) meeting this year, and its first under new Governor Sahap Kavcioglu, the bank made no changes to its benchmark policy rate – also known as the one-week repo rate – keeping it at 19%.
"Demand and cost factors, supply constraints in some sectors, and high levels of inflation expectations continue to pose risks to the pricing behavior and inflation outlook," the bank said in a statement.
It added that the decelerating impact of the current monetary stance on credit and domestic demand is projected to become more significant in the upcoming period.
In light of this, the committee decided to maintain a tight monetary policy stance by keeping the policy rate unchanged.
- Price stability main objective
The bank also stressed that it will continue to decisively use all available instruments to ensure the primary objective of price stability.
"The policy rate will continue to be determined at a level above inflation to maintain a strong disinflationary effect until strong indicators point to a permanent fall in inflation and the medium-term 5% target is reached," it underlined.
Driven by domestic and external demand, domestic economic activity is strong, the bank also said, adding that nevertheless, risks for economic activity exist in either direction depending on the progress of the pandemic and vaccination efforts.
The bank also said the recovery process relies on increasing the speed of global trade and manufacturing industry activities.
"While the upward trend in commodity prices has decelerated, the effects of the rising global inflation expectations on international financial markets remain significant," it highlighted.
It also said the weak course continues in the services sector due to the pandemic restrictions.
"Notwithstanding the rise in exports and the fall in gold imports, strong domestic demand and commodity prices continue to adversely affect the current account balance."
The bank also said an upward trend in consumer loan growth is being monitored albeit amid tightening financial conditions, whereas commercial loans are showing a moderate course.
Among 20 economists surveyed by Anadolu Agency on Tuesday, 19 predicted no change in the one-week repo rate, while one predicted a rise of 100 basis points.
Last month, Turkey saw a 16.19% annual hike in consumer prices, according to the country's statistical authority.
The Turkish Central Bank has set a medium-term inflation target of 5%.
At March's meeting, the bank under then-Governor Naci Agbal raised the one-week repo rate by two percentage points, from 17% to 19%, above market expectations.
On March 20, Agbal was dismissed and replaced with Kavcioglu, a former parliamentarian.
Since taking the post, Kavcioglu has said the bank will ensure the strength and credibility of the Turkish lira with determination in its fight against inflation.
By Aysu Bicer