CBRT published the summary of the July 23rd Monetary Policy Committee (MPC) meeting. The inflation-related section of the summary drew attention to the rigidity in services inflation in particular. “The prevailing pricing behavior in the services sector leads to significant inertia and the effects of shocks on inflation spread over a long period of time,” the MPC summary said.
The CBRT signaled that tight monetary policy will be maintained until the underlying trend of monthly inflation declines significantly and permanently and expectations converge to the projected forecast range.
The CBRT MPC summary continued as follows:
-The high course and rigidity in services inflation, inflation expectations, geopolitical risks and food prices keep inflationary pressures alive.
-Recent indicators confirm that domestic demand, albeit still at inflationary levels, continues to slow down.
-Accordingly, an overall analysis of consumption indicators along with the more recent data indicate that demand may not be slowing down to the extent envisaged in the Inflation Report.
-Leading indicators suggest that monthly inflation will rise temporarily in July due to adjustments in administered prices and taxes as well as supply-side factors in unprocessed food prices, which are relatively beyond the control of monetary policy. However, the rise in the underlying inflation is expected to be relatively limited.
– The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range. Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen. The decisiveness regarding tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations.
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