Turkish central bank again holds rates despite rising prices

CBRT says it will hold policy rate at 19% until it sees significant fall in inflationary pressures
central-bank-of-the-republic-of-turkey-2
The Central Bank of the Republic of Turkey
CBRT

The Turkish central bank’s monetary policy committee again voted to keep its policy rates on hold despite a continuing rise in inflation.

The seven-member MPC decided to hold the one-week repo rate at 19% today (May 6), as it did at its last meeting on April 15. The last governor of the Central Bank of the Republic of Turkey was dismissed by president Recep Tayyip Erdoğan shortly after the MPC raised rates by 200 basis points.

The MPC said in a statement there were “high levels of inflation and inflation expectations”, but added the recent tightening in monetary policy was starting to take effect. It remains to be seen whether Turkey’s president will be satisfied with a policy that does not cut policy rates.

Erdoğan replaced Naci Ağbal as governor with Şahap Kavcıoğlu, who chaired today’s meeting. The Turkish president previously fired both Ağbal’s predecessors as governor, Murat Uysal and Murat Çetinkaya, for failing to run a loose monetary policy. He also dismissed the central bank’s deputy governor, also called Murat Çetinkaya, ten days after firing Ağbal, replacing him with Mustafa Duman.

 “Demand and cost factors, supply constraints in some sectors and high levels of inflation expectations continue to pose risks on pricing behavior and inflation outlook,” it said. “The slowdown effects of monetary tightening on loans and domestic demand have started to be observed.”

Erdoğan has made very strongly-worded criticisms of those who support higher policy rates, accusing them of causing inflation and working against Turkey’s interests. Some of his leading allies have also made aggressive statements about supporters of tighter policy.

Former governors Uysal and Çetinkaya sometimes tried to tighten monetary policy while avoiding raising policy rates, by changing banks’ deposit ratios. The two MPC meetings chaired by Kavcıoğlu have avoided any such course.

Official Turkish figures report year-on-year inflation has climbed for seven consecutive months, reaching 17.14% in April from 11.75% in September last year. Some unofficial observers estimate the actual rate of inflation is higher than official statistics.

Steve Hanke, a professor at Johns Hopkins University and fellow at the right-wing Cato Institute, calculates year-on-year inflation is over 20%. Hanke bases his estimates on unofficial currency exchange rates.  

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