Central Bank holds policy rates, pressure remains on inflation
The Central Bank of Turkey held policy rates in last week’s meeting, pointing to the end of a rate-tightening cycle. The central bank kept the one-week repo rate stable at 8.0%, the marginal funding rate stable at 9.25%, and the overnight borrowing rate at 7.25%, all in line with market expectations. In its announcement, the central bank noted that the economic recovery has gained pace and is expected to further accelerate due to the supportive measures and incentives recently provided. The central bank also indicated that recent improvements in cost factors and anticipated partial correction in food prices would contribute to disinflation, but that the current elevated levels of inflation pose risks on pricing behavior. Accordingly, the monetary policy committee (MPC) chose to maintain its tight policy stance until the inflation outlook displays a significant improvement. The central bank kept the wording of the announcement the same, reiterating that further monetary tightening will be delivered if required. According to inflation figures for May, annu- al CPI fell to 11.7% year-on-year from 11.9% year-on-year in April, the highest level since October 2008. Following this decline and with the central bank keeping the width of the interest rate corridor stable, the spread between headline inflation and the average cost of funding remained at around 25 basis points. Upon compiling research reports, all analysts agreed that a rate rise is not on the cards in foreseeable future.