Turkish Central Bank holds policy rate at 37% for third straight meeting

The Central Bank of the Republic of Türkiye announced on Thursday that it has kept its policy rate (one-week repo auction rate) unchanged at 37% for the third consecutive Monetary Policy Committee meeting, matching market expectations. The bank last cut rates in January, from 38% to 37%. It also held the overnight lending rate at 40% and the overnight borrowing rate at 35.5%. The underlying trend of inflation decreased slightly in May after rising in April, partly due to higher energy prices. “Amid geopolitical developments and the resulting uncertainties, energy prices remain volatile and elevated,” the bank said.

Economic outlook

The bank noted that first-quarter data pointed to a slowdown in economic activity, while leading indicators suggested a continued weak course in domestic demand. “The impact of geopolitical developments on the inflation outlook through the cost channel, economic activity and expectations is closely monitored,” the committee said. It reiterated that the tight monetary policy stance will be maintained until price stability is achieved, adding that this stance will strengthen the disinflation process. The policy rate will be determined taking into account realized and expected inflation, with a focus on the inflation outlook.

Inflation and future policy

The committee warned that “in case of a significant and persistent deterioration in the inflation outlook, monetary policy stance will be tightened.” It also said liquidity conditions will be closely monitored. The bank aims to create conditions to reach the 5% inflation target in the medium term. Türkiye’s annual inflation rose to 32.61% in May from 32.37% in April, while monthly CPI climbed 1.71%. For Türkiye, the continued hold reflects caution amid the Iran war, the closure of the Strait of Hormuz, and the resulting energy price volatility.