Interest rates unchanged, inflation highlighted

The Central Bank’s Monetary Policy Committee (PPK) held interest rates unchanged, as it was expected. The Central Bank will continue its funding of the market through the late liquidity window with an interest rate of 12.75 percent.

There’s was only one difference in the statement made following the PPK meeting compared to the January statement and that was the emphasis on inflation.

Two months ago, like today, the PPK noted that, “Inflation and inflation expectations being at such high levels will continue to pose risks on pricing behaviors.” This time around however, there was an additional remark: “Indicators regarding the main trend are still rigid and core inflation remains high.”

The statement also repeated its January assessment: “In this regard, the committee has decided to maintain its tight stance in monetary policies.” It also held ground on its basic principle, summarized as, “I won’t cut rates on temporary declines in inflation” that it made after the January meeting. That remark was also in this PPK meeting statement: “The tight stance in monetary policies will be maintained until there is a significant recovery, compliant with the targets, independent from base effect and temporary factors.”

The Central Bank is keeping its guard up with this remark, as inflation is expected to decline this year with the base effect or at least steer moderate. January and February data, released by TurkStat, supported this prediction, showing a downward trend though not a sharp one.

So, the Central Bank is standing by its message to politicians: Don’t ask for rate cuts for temporary declines as these declines are not indicators of success in the fight against inflation and may only represent a base effect related to a temporary improvement.

12.75 for the last three months

The Central Bank closed all funding channels last year on November 22, except the late liquidity window, known as a side channel. The interest rate on the late liquidity window was 12.25 percent on November 22.

The Central Bank raised it to 12.75 percent in the meeting held on December 14 and it was enforced starting on December 15. The next meeting of the PPK will be held on April 25. By then, unless there is an extraordinary development that would require an immediate change in rates, the late liquidity window interest rates of 12.75 percent will have held for about four and a half months and will almost certainly drag on further.

The Committee’s next meetings after April 25 will be held on June 7, July 24, September 13, October 25 and December 13.