The Turkish central bank on Thursday kept its main key rate unchanged at 50%, despite the risks of inflation which it ensures it is “monitoring closely”.
Last month, on the eve of the municipal elections, the institution raised its rate by 5 points, a decision justified by a surge in consumer prices beyond expectations, almost 70% over one year.
“In March, despite a continued decline, the trend in monthly inflation was higher than expected,” she explained in a press release on Thursday, specifying “to closely monitor the alignment of inflation expectations and behavior prices”.
“The effects of monetary tightening on credit conditions and domestic demand are being closely monitored,” she adds.
“The restrictive monetary stance will be maintained until a significant and lasting decline in the monthly (inflationary) trend is observed.”
The institution had raised its key rate from 8.5 to 45% between June and January.
For the analysis firm Capital Economics, based in London, “the tightening cycle has probably come to an end” but, he adds, “with an economy in strong growth and inflationary pressures still high, we still do not foresee rate cut before next year”, in 2025.
Last week, the Minister of Economy and Finance, Mehmet Simsek, said he was “determined to reduce inflation and the current account deficit, establish budgetary discipline and resolve the structural problems” of the Turkish economy.
He at the same time affirmed on the “X” network to be in this sense “fully supported by our president from the start”, while the severe setback suffered by the ruling AKP party of President Recep Tayyip Erdogan in the municipal elections of March 31 was greatly attributed to inflation.
This reached 68.5% in April over the last twelve months, according to contested official statistics.
The head of state has always been hostile to high interest rates which he considers contrary to Islam, but the surge in consumer prices has forced him to accept the return to a more orthodox monetary policy.
“Our priority, our first objective is to make savings in public spending, to reduce inflation and to relieve the economy. We have already succeeded, we will succeed again,” declared President Erdogan on Tuesday.
“As a government, we are determined to do whatever is necessary to achieve this,” he said.