Turkey’s central bank maintains key rate, signals hawkish stance

Investing.com -- Turkey’s central bank kept its key interest rate unchanged at 46.0% on Thursday, maintaining a hawkish tone despite market expectations for potential rate cuts later this year. The decision to hold the one-week repo rate steady was widely anticipated by economists and market participants.

The Central Bank of the Republic of Turkey (CBRT) also left its overnight lending rate unchanged at 49.0%, contrary to some pre-meeting speculation that it might lower this upper bound of its interest rate corridor. The bank’s statement emphasized that "the tight monetary stance will be maintained until price stability is achieved," signaling its commitment to fighting inflation.

Turkish monetary policymakers further warned that "policy tools will be effectively used" if the inflation outlook deteriorates, preserving their option to tighten monetary conditions if needed to protect the Turkish lira from potential pressure. This language reinforces the central bank’s current priority of stabilizing prices over stimulating economic growth.

Despite the hawkish rhetoric, Capital Economics predicts that "interest rate cuts will resume in July, with the one-week repo rate lowered to 38.0% by year-end." The research firm’s forecast suggests a more moderate easing cycle than some market participants might expect.

Capital Economics also noted longer-term constraints on monetary policy, stating that "interest rates will not come down as far as most are expecting given the need to maintain high real interest rates to bring inflation down to single digits on a sustained basis." This outlook suggests Turkey faces a prolonged period of relatively tight monetary policy.

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