MNI CBRT WATCH: Hold Or Hike Possible After Shadow Tightening

The Central Bank of the Republic of Turkey is widely expected to leave its policy rates unchanged its meeting on April 22, betting that the further inflationary impulse from the Iran war could be reduced if the current ceasefire holds.

The CBRT has already tightened conditions by suspending its 37% one-week repo rate, leaving as its effective funding instrument the 40% overnight rate.

Still, several analysts see a possibility that it will formalise this “shadow tightening” by reinstating the one-week repo, and boosting it to 40%, together with an equivalent increase in the overnight rate, which would emphasise its commitment to capping price expectations.

However, Bloomberg has reported that Governor Fatih Karahan could lean dovish in the near term even if the policy rate is raised at this meeting. (see MNI INTERVIEW: CBRT Should Signal Willingness To Cut - Ex-DG)

The central bank left its one-week repo on hold at 37% at its March 12 meeting, committing to a "tight monetary policy stance" until it reaches its medium-term target of 5% inflation, while highlighting risks from the war in Iran. It also shifted to more hawkish language, saying "decisions are made prudently on a meeting-by-meeting basis with a focus on the inflation outlook."

The interim inflation target for year-end 2026 is 16%, while March CPI inflation was at 30.87%, down from 31.53% in February.