TURKEY'S CENTRAL BANK STAYS PUT ON KEY RATE IN JUNE, SEES CONTINUED DISINFLATION
Interest rates maintain steady position at 46% by Central Bank
The Turkish Central Bank has kept its key interest rate unchanged at 46% following a meeting of the Monetary Policy Committee (MPC) on June 19. This move comes after months of sky-high inflation that's finally cooling off.
The bank had previously jacked up the one-week repo auction rate, the overnight lending rate, and the overnight borrowing rate in April. The decision to hold firm on rates is aimed at continuing the disinflation process and achieving the elusive goal of price stability.
The MPC statement stated that the tight monetary stance would be maintained until inflation drops significantly and remains on a downward trend. The bank's committe believes that a more harmonized fiscal policy will further bolster this process.
The bank's tight purse strings have been a key factor in the ongoing disinflation trend. By keeping interest rates high, the bank is tactically thinning the blood supply to the economy, curbing demand and slowing the rampaging price growth. Some analysts predict that the bank may consider easing up on rates when they see a more sustainable decline in inflation, possibly as early as July.
According to the bank's data, Turkey's annual inflation rate has shown signs of improvement, falling from a peak of 37.9% in April to 35.4% in May. The monthly inflation rate also softened from 3% to 1.5%.
Despite the encouraging numbers, the bank is keeping a cautious eye on potential threats to the disinflation process. The geopolitical climate and rising protectionism in global trade could have unexpected side-effects that could disrupt the fragile market balance.
The bank's long-term forecast sees inflation steadily declining to 8% by 2027 and further stabilizing at 5% in the medium term. This optimistic outlook, however, still places Turkey among the countries with the highest inflation rates worldwide.
In summary, the Turkish Central Bank's continued tight monetary policy has helped slow down spiraling inflation, with annual inflation falling from its peak in April to 35.4% in May. The bank is now focusing on maintaining this downward trend and achieving price stability, all while keeping a wary eye out for potential threats to the disinflation process.
Businesses in Turkey may see a shift in the finance landscape as the Central Bank's tight monetary policy continues, aiming to achieve price stability and disinflation. The high interest rates, a key factor in the ongoing disinflation trend, are strategically curbing demand and slowing price growth in the business sector.
