The Monetary Policy Committee (PPK) of the central bank decided to keep overnight borrowing rates at their record low 6.5 percent on Thursday, an expected move as the bank has repeatedly emphasized that it will keep policy rates at this “low level” for a “long period of time.”
In a press release stating their decision, the bank took note of the expectations survey conducted monthly, which showed that expectations for the consumer price index (CPI) by actors in the real and financial sectors for the end of the year was 8.17 percent -- the highest level in over a year. While indicating that their intention was to keep policy rates at their current levels, the bank noted that they “will not hesitate to tighten monetary policy sooner than envisaged in the baseline scenario of the Inflation Report should the recent increase in inflation expectations lead to a deterioration in price setting behavior.”
This statement marks the first time the bank has taken a hawkish attitude toward protecting price stability this year. In previous decisions on the topic, the bank made a general statement stating that “any new data or information related to the inflation
outlook may lead the committee to revise its stance.” The newer more aggressive outlook raises the question of whether the current interest rate trough will be short-lived. An increase in the near future may bring doubts about the stability of prices in Turkey -- a country haunted by its past history of three-digit inflation.
Ersagun Şimşek of Tera Brokers took note of this change in the outlook of the bank and stated, “There is an important risk in inflationary expectations, and the possibility of upping interest rates in the summer months rather than the fourth quarter of the year should not be ignored.” He added that they do not expect markets to react to this news.
