Turkey’s central bank holds interest rates steady again at 50 pct

Duvar English

Turkish Central Bank's Monetary Policy Committee, led by Governor Fatih Karahan, on May 23 decided to maintain the interest rate at 50 percent for the second consecutive time after the local elections in March.

The committee noted a modest decline in the underlying trend of monthly inflation in April. Accordingly, recent indicators suggested a slowdown in domestic demand compared to the first quarter, although consumption goods imports saw an uptick in April, constraining improvements in the current account balance.

The bank also underscored that services inflation has remained high, with inflation expectations, geopolitical risks, and food prices contributing to ongoing inflationary pressures.

The committee once again stated that they left the interest rate unchanged because of the “lagged effects of the monetary tightening,” like it did in April.

The bank said that it expected the disinflation process to be maintained in the second half of the year. On May 9, Governor Fatih Karahan announced that the bank raised its year-end inflation forecast by two points to 38 percent. 

Turkish annual consumer price inflation climbed to 69.8% in April, official data showed on May 3, the highest since late-2022.

The expectation of economists participating in the Reuters survey in April was that the interest rate would be kept constant at 50 percent until the fourth quarter of the year.

All economists participating in Anadolu Agency's expectations survey also predicted that the bank would leave the policy rate unchanged at 50 percent. The median of the year-end policy rate expectations of the economists participating in the survey was estimated as 45 percent.

Leading up to the presidential elections held on May 14, 2023, the USD/lira exchange rate stood at 19.57. By May 28, when the second round of the presidential election took place, it had risen to 19.97. Similarly, the Euro was trading at 21.37 liras.

As of May 23, 2.45 p.m. (local time), the Dollar/lira exchange rate has surged to 32.21, while the Euro/TL exchange rate was at 34.93.