Turkey’s central bank, the CBRT, kept its policy rate unchanged at its Monetary Policy Committee (MPC) meeting, aligning with market expectations. The one-week repo rate remained steady at 50%.
In its accompanying statement, the CBRT highlighted that the underlying inflation trend remained stable, with inflationary pressures easing as domestic demand continued to slow. The Bank noted that improvements in services sector price inflation are anticipated in the final quarter of the year, which could pave the way for interest rate cuts in November or December. Should this softening in services prices occur, the CBRT is expected to initiate an easing cycle by reducing rates by 250 basis points in December. However, the Bank plans to maintain a positive real interest rate through 2025.
Uncertainty around the minimum wage hike lingers. The government has been retroactively adjusting wage increases amid inflationary policies aimed at boosting growth in the lead-up to the 2032 elections. The CBRT is now advocating for wage increases to be indexed to the 2025 inflation forecast of 17.5%. This makes December a pivotal month for the Bank’s decision-making.
Another critical factor for the CBRT is the 2025 budget, set to be submitted to Parliament by the end of October. Expected spending cuts could allow the Bank to proceed with interest rate cuts in December, even before the minimum wage hike details are finalized.
The MPC text is as follows:
The Monetary Policy Committee (the Committee) has decided to keep the policy rate (the one-week repo auction rate) constant at 50 percent.
When all indicators pertinent to monthly inflation are jointly analyzed, its underlying trend is assessed to have displayed no discernible change in August. Indicators for the third quarter confirm that domestic demand continues to slow down with a diminishing inflationary impact. While core goods inflation remains low despite a slight uptick, the improvement in services inflation is expected to occur in the last quarter. The Committee noted that inflation expectations and pricing behavior continue to pose risks to the disinflation process.
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. Consequently, the disinflation process will gain strength. The Committee decided to keep the policy rate unchanged, but reiterated that it remains highly attentive to inflation risks. 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 tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen.
In case of unanticipated developments in credit and deposit markets, monetary transmission mechanism will be supported via additional macroprudential measures. Liquidity conditions are assessed with respect to prospective developments and closely monitored. Sterilization tools will continue to be implemented effectively.
Taking into account the lagged effects of monetary tightening, the Committee will make its policy decisions so as to create the monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5 percent inflation target in the medium term.
Indicators of inflation and underlying trend of inflation will be closely monitored, and the Committee will decisively use all the tools at its disposal in line with its main objective of price stability.
The Committee will make its decisions in a predictable, data-driven and transparent framework.
The summary of the Monetary Policy Committee Meeting will be released within five working days.