Turkish central bank maintains policy rate at 50 percent

This decision comes amid ongoing inflationary pressures and a noted slowdown in domestic demand.

In a statement released after their meeting, the Committee observed a slight decline in the underlying trend of monthly inflation in April. "Recent indicators point to a slowdown in domestic demand compared to the first quarter. Meanwhile, consumption goods imports increased in April, limiting the improvement in the current account balance," the Committee stated.

Despite this, several factors continue to sustain inflationary pressures, including high levels and persistent services inflation, inflation expectations, geopolitical risks, and food prices. The MPC emphasized its close monitoring of these inflation indicators and the alignment of inflation expectations and pricing behavior with projections.

The statement highlighted the effects of monetary tightening on credit conditions and domestic demand, which are being closely monitored. "Considering the lagged effects of the monetary tightening, the Committee decided to keep the policy rate unchanged, but reiterated that it remains highly attentive to inflation risks," the statement read. The Committee affirmed that the tight monetary stance will persist until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations align with the projected forecast range.

Moreover, the MPC indicated that monetary policy could be tightened further if a significant and persistent deterioration in inflation is anticipated. They stated that a decisive tight monetary stance would help reduce the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in the Turkish lira, and improvement in inflation expectations. They expect disinflation to be established in the second half of the year.

In an effort to simplify the macroprudential framework and enhance market functionality, the Committee has terminated the securities maintenance practice. They also announced additional steps to preserve macro financial stability and support the monetary transmission mechanism, noting that excess liquidity from increased domestic and foreign demand for Turkish lira financial assets will be sterilized through additional measures.

The MPC reiterated its commitment to creating the necessary monetary and financial conditions to ensure a decline in the underlying trend of inflation and to achieve the 5 percent inflation target in the medium term.

The Committee also underscored the importance of a predictable, data-driven, and transparent decision-making framework, pledging to decisively use all available tools to ensure price stability.

The MPC's next steps will be closely monitored, with particular attention to inflation indicators and trends, as the Central Bank continues its efforts to stabilize the Turkish economy amidst various internal and external challenges. (ILKHA)