17.04.2025 14:11
The Central Bank raised the policy interest rate by 350 basis points, bringing it to 46%. Additionally, the Central Bank increased the overnight lending rate from 46% to 49%, and the overnight borrowing rate from 41% to 44.5%. With this latest decision, the Central Bank made a surprising move that was outside of market expectations.
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While the effects of tariff standoffs continue in global markets, eyes are turned to the Central Bank's interest rate decision in the country. At 14:00, the Monetary Policy Committee (MPC) of the Central Bank of the Republic of Turkey (CBRT), chaired by Central Bank President Fatih Karahan, decided to raise the interest rate from 42.5% to 46%. Thus, the Central Bank increased the policy interest rate for the first time in 13 months.
The Monetary Policy Committee (MPC) announced its interest rate decision. Accordingly, the MPC raised the one-week repo auction interest rate, which is the policy interest rate, by 350 basis points to 46%.
While the weighted expectation in the market was to keep the interest rate unchanged, it was mentioned that a rate hike could be on the table. The MPC had made a 250 basis point interest rate cut at its meeting on March 6. However, on March 20, with an extraordinary meeting not scheduled in the calendar, it raised the overnight lending rate from 44% to 46%. It had kept the policy interest rate unchanged at 42.5%.
OVERNIGHT INTEREST RATE ALSO RAISED TO 44.5%
The bank's statement included the following expressions: The Monetary Policy Committee (Committee) has decided to raise the one-week repo auction interest rate, which is the policy interest rate, from 42.5% to 46%. The Committee also raised the overnight lending rate from 46% to 49%, and the overnight borrowing rate from 41% to 44.5%.
The main trend of inflation has declined in March. It is anticipated that the monthly core goods inflation will rise somewhat in April due to developments in financial markets, while service inflation is expected to remain relatively stable. Leading data imply that domestic demand, while losing momentum in the first quarter, has remained above expectations and its disinflationary effect has diminished. The increasing protectionist tendencies in global trade are closely monitored for their potential effects on global economic activity, commodity prices, and capital flows in the disinflation process. Inflation expectations and pricing behaviors continue to be a risk factor for the disinflation process.
The determined stance in monetary policy strengthens the disinflation process through balancing domestic demand, real appreciation of the Turkish lira, and improvement in inflation expectations. The increasing coordination of fiscal policy will also make significant contributions to this process. A tight monetary policy stance will be maintained until a permanent decrease in inflation and price stability is achieved. In this direction, the policy interest rate will be determined in a way that provides the necessary tightness required by the anticipated disinflation process, taking into account inflation realizations, main trends, and expectations. The Committee will determine the steps to be taken regarding the policy interest rate with a focus on the inflation outlook, a cautious approach, and a meeting-based strategy. If a significant and permanent deterioration in inflation is anticipated, the monetary policy stance will be tightened.
As a result of recent developments in financial markets, additional steps supporting the monetary transmission mechanism have been taken urgently. Liquidity conditions will be closely monitored, and liquidity management tools will continue to be used effectively.
The Committee will determine its policy decisions by considering the lagged effects of monetary tightening, in a way that will reduce the main trend of inflation and provide the monetary and financial conditions to achieve the inflation target of 5% in the medium term. In this direction, all monetary policy tools will be used decisively. The Committee will make its decisions within a predictable, data-driven, and transparent framework.
The Summary of the Monetary Policy Committee Meeting will be published within five business days.
AFTER THE MARCH CUT, A HOLD WAS EXPECTED
The Central Bank had set the policy interest rate at 42.5% after reducing it by 250 basis points in March from 45%. Economists expected the Central Bank of the Republic of Turkey to keep the policy interest rate unchanged at 42.5% in April. With this latest decision, the Central Bank made a surprising decision outside the market expectations.
EXTRAORDINARY MEETING ON MARCH 20
The MPC had made a 250 basis point interest rate cut at its meeting on March 6. However, on March 20, with an extraordinary meeting not scheduled in the calendar, it raised the overnight lending rate from 44% to 46%. It had kept the policy interest rate unchanged at 42.5%. Thus, the Central Bank increased the policy interest rate for the first time in 13 months.
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