Türkiye | CBRT kept policy rate at 50%

Summary

The CBRT kept the policy rate constant at 50% in line with market expectations. We expect the CBRT to remain tight for longer on high inflation expectations, which would start a sustained path to unwind current regulations and exit from the FC protected scheme to strengthen the monetary transmission mechanism.

Key points

• Key points:
• CBRT kept the policy rate unchanged, considering the significant tightening of financial conditions recently and the lagged effects of monetary policy.
• CBRT acknowledged that the inertia in high services inflation, food prices, geopolitical risks and high inflation expectations keep the pressures on inflation alive in the short term.
• Upper limit of remuneration given to required reserves in TL has been increased by the CBRT to accelerate the conversion from FX protected TL deposits to standard TL deposits, while enhancing financial stability to reduce the upward pressure on the average cost of TL deposits.
• We envisage additional demand restrictive policies from now onwards, including a tighter fiscal stance except for the needed earthquake spending.
• We assess that the downward risk on our inflation (45%) and growth forecasts (3.5%) for 2024 has increased.

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