Turkey holds policy rate constant at 9%

Turkey holds policy rate constant at 9%
* ENAG is an inflation research group run by Istanbul-based economists. / bne IntelliNews
By Akin Nazli in Belgrade January 19, 2023

The Turkish central bank’s monetary policy committee (MPC) on January 19 left its policy rate at 9%, the authority said in a statement (chart). The 'hold' was expected by the market.

Turkey's policy rate and central bank, however, essentially remain idle on the sidelines. The Erdogan administration conducts monetary policy via macroprudential measures and non-capital controls.

President Recep Tayyip Erdogan demanded a single-digit policy rate and it was delivered at 9% in November. The policy rate is set to stay there for the near future. Turkey’s MPC meetings have again turned into non-events.

On January 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s official consumer price index (CPIinflation ended 2022 at 64% y/y after the base effect took hold.

In October, the central bank hiked its expectation for end-2023 official inflation to 22% (upper boundary: 27%) from the previous figure of 19% given in its July inflation report.

The guidance was based on the assumption that the Turkish lira (TRY) will not experience another crash. As of January 19, the USD/TRY pair was up 1% to TRY 18.8 from 18.6 on October 27.

If the USD/TRY remains stable, Turkey’s official inflation figure is set to decline to the 30-40%s across 2023.

The turbulence-free mood on the global market continues. Turkey’s five-year credit default swaps (CDS) remain below the 600-level, while the yield on the Turkish government’s 10-year eurobonds remains below the 10%-level.