Türkiye's central bank on Thursday kept its key policy rate, also known as the one-week repo rate, constant at 45%, pausing the monetary tightening after eight consecutive months of hikes, as expected, but said the policy stance would be tightened if a significant and persistent deterioration in the inflation outlook is anticipated.
The meeting of the Monetary Policy Committee (MPC) marked the first one under the recently appointed governor, Fatih Karahan, who assumed the post following the resignation of former central bank chief Hafize Gaye Erkan.
"The committee assesses that the current level of the policy rate will be maintained until there is a significant and sustained decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range," the Central Bank of the Republic of Türkiye (CBRT) said in a statement.
"Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation outlook is anticipated," it added.
The central bank embarked on the tightening cycle last June as President Recep Tayyip Erdoğan named a new economic administration that shifted from a low-monetary policy stance and lifted rates by a cumulative 3,650 basis points through January.
Türkiye's year-over-year inflation edged up to 64.86% in January from 64.77% in the previous month, according to the country's statistical authority. The bank projects 36% inflation at the end of the year.
Karahan said in his first public appearance on Feb. 8 that there was no need for a further rate hike. However, he warned the central bank would review its decision if the inflation outlook deteriorated, opening the door to maintaining the tightness needed to achieve price stability.
After its latest hike, the central bank said last month it had achieved the policy setting needed to establish disinflation and this rate level would be maintained until there is a significant decline in the underlying trend of monthly inflation. The authorities expect inflation to begin to cool as of midyear.
According to the median forecast of the recent Reuters poll, the policy rate is expected to be 37.5% at the end of 2024. Only one of the 10 institutions who responded to the query expected the policy rate to remain at 45% at the end of the year, with the estimates in the 35%-45% range.
A survey by Anadolu Agency (AA) earlier also predicted the CBRT would keep the key policy rate at the current level.
According to the survey results, all 14 economists participating in the survey expected the policy rate to remain at 45%, while the poll's median forecast sees the year-end policy rate at 36.25%.
Analysts have ruled out further hikes in the near future. Liam Peach, senior emerging markets economist at London-based Capital Economics, said in a note that an extended interest rate pause was likely over the coming months.
"With inflation likely to end the year at 30%-35%, there is still a possibility that the central bank starts an easing cycle before the end of the year, which many analysts are expecting," he said.
"But our baseline view remains that interest rates will stay on hold throughout this year and that rate cuts won't arrive until early next year."
Bartosz Sawicki, market analyst at Conotoxia, said Karahan followed his predecessor's guidance that the tightening cycle had been completed in January.
"Due to month-specific and time-dependent price and wage adjustments, the underlying trend of monthly inflation rose in January in line with the inflation projections, and headline inflation edged up," the bank said, adding, however, that recent indicators suggest that domestic demand continues to moderate.
