MNI EM CBRT WATCH: Holds Rates As 'Attentive To Upside Risks'

The Central Bank of the Republic of Turkey held its policy rate at 37% on Wednesday, and reiterated that it is monitoring the effects of the conflict in the Middle East.

The committee "remains highly attentive to upside risks on inflation," the CBRT said in a press release, adding that a "deterioration in the inflation outlook," which could be driven by the war, could require a tighter monetary policy stance.

"The effects of these developments and domestic energy prices on the inflation outlook through the cost channel and economic activity are being closely monitored." 

While underlying inflation declined to 30.9% in March, the Bank noted that leading indicators suggest a slight increase to the trend in April. The medium-term inflation target is 5%.

The CBRT said that indicators are pointing to a slowdown in economic activity, but that "second-round effects of recent developments on the inflation outlook will be of importance." (See MNI INTERVIEW: CBRT Should Signal Willingness To Cut - Ex-DG)

Since the decision, market pricing imply a central expectation for inflation to end the year in the high twenties, less than a third of the way to the year-end target of 16%.

Since one-week repos were suspended on March 1, liquidity has been supplied at the overnight lending rate of 40%, resulting in slightly tighter financial conditions than the headline policy rate would suggest. 

The Bank restated that the current monetary policy stance will remain tight until price stability is achieved.