Türkiye's central bank kept the one-week repo rate, also known as the policy rate, constant at 8.5%, in line with the market forecast.
"It has become even more important to keep financial conditions supportive of preserving the growth momentum in industrial production and the positive trend in employment after the earthquake. Accordingly, the Committee has decided to keep the policy rate unchanged," the Central Bank of the Republic of Türkiye (CBRT) said in a statement.
It said that the current monetary policy stance was adequate to support the necessary recovery in the aftermath of the earthquake by maintaining price and financial stability.
Two powerful earthquakes hit 11 provinces in southern Türkiye on Feb. 6, causing extensive damage and killing and injuring tens of thousands.
The recent earthquake is expected to have a short-term impact on the country's economy. Still, it is unlikely to affect its performance in the medium term permanently. While the Turkish economy benefits from a high share of sustainable growth components, including a substantial contribution from tourism throughout the year, there are still some risks to the current account balance due to high energy prices and weak economic activity in export markets.
"While the level and underlying trend of inflation have been improved with the support of the implemented integrated policy approach, the effect of earthquake-driven supply-demand imbalances on inflation is closely monitored," the bank said.
According to the latest data from the Turkish Statistical Institute (TurkStat), Türkiye's annual consumer inflation rate eased to a 12-month low of 55.18% in February.
At its February meeting, the bank cut the rate by 50 basis points to 8.5%, thus having lowered the key rate by 550 basis points, or 5.5 percentage points, since August 2022.
According to the bank statement, although economic activity has been more positive than expected, concerns about recession persist in the developed countries economies. In addition, it said that geopolitical risks and interest rate hikes had created conditions that threatened financial stability.
While supply constraints have reduced adverse effects on some sectors in the country, fundamental food, due to strategic solutions developed by Türkiye, the bank said, high global inflation is still closely monitored for its effects on inflation expectations and international financial markets.
The announcement notes that despite the differing economic outlook among countries, coordinated steps have been taken to prioritize financial stability through swap agreements and new liquidity opportunities. However, the central banks of developed countries continue to diverge in their monetary policy steps and communications.
The announcement also suggests that domestic demand is livelier than foreign demand in the first quarter of 2023, and the growth trend is rising.
"To ensure price stability and sustainable levels of the current account balance, it's important to closely monitor the growth rate of loans and the meeting of financial resources with economic activity. The 2023 Monetary Policy and Liraization Strategy emphasizes the need to use tools that support the effectiveness of the monetary transmission mechanism and align policy with liraization targets, especially funding channels. The board's priority is to create the necessary financial conditions to minimize the effects of the disaster and support the necessary transformation," the bank said.
