Turkish central bank holds rates at 50%

Turkey’s central bank said on Thursday that it was keeping interest rates steady at 50%, as widely expected.

It said in a statement: "In September, the underlying trend of inflation posted a slight increase. Indicators for the third quarter suggest that domestic demand continues to slow down, approaching disinflationary levels.

"While core goods inflation remains low, the improvement in services inflation is expected to occur in the last quarter. However, the uncertainty regarding the pace of improvement in inflation has increased in light of incoming data. The Committee noted that inflation expectations and pricing behaviour 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 Bank said its tight monetary stance will be maintained until a "significant and sustained" decline in the underlying trend of monthly inflation is seen and inflation expectations converge to the projected forecast range.

Data released earlier this month showed that inflation in Turkey slowed less than expected in September, to 49.4% from 52% in August. Although this was below the policy rate for the first time since 2021, it was above expectations of 48.1%.

Nicholas Farr, emerging Europe economist at Capital Economics, said: "Overall, it seems clear that the CBRT - like us - doesn’t think the conditions are in place for a monetary easing cycle to start very soon.

"While headline inflation should continue to fall this year as unfavourable base effects continue to unwind, we think the process will be slow and bumpy. The consensus view among analysts until recently had been that monetary easing would begin this quarter, but a growing number are coming round to our view that this looks a little premature."