Turkey's central bank held its principal policy rate steady on Thursday, keeping the one-week repo rate at 37% in line with a market poll. Alongside that decision, the Monetary Policy Committee left the overnight lending rate at 40% and the overnight borrowing rate at 35.5%.
In an accompanying statement, the committee said the underlying trend of inflation edged down slightly in June. However, it added that leading indicators point to a temporary uptick in the underlying trend during July. The statement also noted energy prices have started to trend higher again amid rising uncertainty tied to geopolitical developments.
The central bank flagged that recent indicators confirm an ongoing weakening in domestic demand. It said it is closely watching how geopolitical developments are filtering through to the inflation outlook via the cost channel, through effects on economic activity, and through expectations.
Affirming its policy stance, the committee said that the current tight monetary policy will remain in place until price stability is achieved. The bank characterized this approach as one that will reinforce the disinflation process through demand, exchange rate and expectation channels.
Policy will be set with reference to realized and expected inflation and the underlying inflation trend. The committee said it will ensure the degree of policy tightness required by the projected disinflation path in line with interim targets. Decisions on the policy rate will be taken on a meeting-by-meeting basis, with the inflation outlook as the central focus.
The statement added that if a significant and persistent deterioration occurs in the inflation outlook, the monetary policy stance will be tightened. The committee emphasized that it remains highly attentive to upside risks to inflation.
To support the monetary transmission mechanism, the central bank said it will deploy additional macroprudential measures if unanticipated developments take place in credit and deposit markets. It also said liquidity conditions will continue to be monitored closely.
Finally, the Monetary Policy Committee reiterated its aim to establish the monetary and financial conditions necessary to reach the 5% inflation target in the medium term. The statement set a clear sequence: monitoring incoming data, assessing the underlying trend, and adjusting the policy stance as needed to remain consistent with the projected path for disinflation.