Turkey’s central bank has kept its benchmark rate unchanged at its first rate-fixing meeting since a new governor was appointed, but signaled it could relax policy if inflation shows signs of it. slow down.
The Monetary Policy Committee, chaired by Sahap Kavcioglu since his surprise appointment last month, has kept the repo rate for one week at 19%, as predicted by economists by Reuters and Bloomberg polls.
In a statement after the meeting, policymakers reiterated their pledge to reduce inflation but ignored the previous administration’s signs of further tightening. Kavcioglu’s predecessor, Naci Agbal, was overthrown by President Recep Tayyip Erdogan in March after interest rates rose higher than expected.
“The policy rate will continue to be determined above inflation to maintain a strong deflation effect until strong indicators indicate inflation is permanently reduced and the medium-term 5% target is met,” stated the committee’s father stated.
Turkey’s inflation has been stuck at double digits for the past three years; Consumer prices have increased by more than 16% over the same period last year.
Kavcioglu, a former academic and journalism columnist, has pointed out that he will not immediately cancel the previous governor’s hawkish policies, despite having previously argued in favor of nefarious theory. The system was promoted by Erdogan that higher borrowing costs would spur inflation, rather than cool it down.
The change in the central bank’s leadership disturbed the financial markets. The lira has lost a tenth of its value since then, as investors feared the bank would bow to pressure from Erdogan to lower its rate in an attempt to spur economic growth.
On Thursday, the lira fell slightly after the announcement to around $ 8.1.
The Commission said it would keep real interest rates above inflation, changing from its previous commitment to maintain tightening policy until the inflation target is reached.
“Significant easing still appears to be in the cards,” said William Jackson, lead emerging markets economics at Capital Economics.
The decision shows that Kavcioglu “will take inflation target seriously. But the language also shows that they are looking for opportunities to lower interest rates, ”Jackson wrote in a note to investors. “This statement is only about keeping real interest rates above inflation. With a one-week repo at 19% and inflation at 16.2%, that has provided scope for interest rate cuts. “
Erdogan last week said he was determined to reduce both interest rates and inflation by one digit.
Kavcioglu was the fourth central bank governor in less than two years. Erdogan did not give a reason to fire Agbal, who raised interest rates to the cumulative 8.75 percentage points during the four months he held the post.
The commission’s statement also said it “will continue to use decisively all available tools to pursue its primary goal of price stabilization” and acknowledged that inflation risks remain due to demand and spending. fees and supply issues in certain areas.
Barclays analysts said in a note: “The risk of early cuts has increased significantly following today’s announcement. We are also not sure whether the commitment to keeping the policy rate above inflation is enough to maintain expectations.
Additional reporting by Adam Samson