CBRT announces July interest rate decision

The Central Bank of the Republic of Türkiye (CBRT) Monetary Policy Committee (MPC) has announced the interest rate decision that markets were eagerly awaiting.

The committee, which met under the chairmanship of CBRT Governor Fatih Karahan, kept the interest rate constant at 50 percent in July.

The policy rate had been kept constant at the meeting held last month.

FIRST STATEMENT FROM THE COMMITTEE

The committee, which met under the chairmanship of Central Bank Governor Fatih Karahan, issued a press release regarding interest rates on the official CBRT website and included the following statements:

"Yaşar Fatih Karahan (Governor), Osman Cevdet Akçay, Elif Haykır Hobikoğlu, Hatice Karahan, Fatma Özkul.

The Monetary Policy Committee (the Committee) has decided to keep the policy rate, which is the one-week repo auction rate, constant at 50 percent.

The underlying trend of monthly inflation recorded a significant weakening in June. Leading indicators suggest that monthly inflation will temporarily increase in July due to supply-side developments in unprocessed food prices and administered-directed price and tax adjustments that fall outside the relative scope of monetary policy. However, it is projected that the rise in the underlying trend will remain relatively limited. Recent indicators confirm that domestic demand continues to slow down, although it remains at an inflationary level. The high level and stickiness of services inflation, inflation expectations, geopolitical risks, and food prices keep inflationary pressures alive. The Committee closely monitors the alignment of inflation expectations and pricing behavior with projections.

The effects of monetary tightening on loans and domestic demand are being closely monitored. While the Committee decided to keep the policy rate constant, taking into account the lagged effects of monetary tightening, it reiterated its cautious stance against upside risks to inflation. The tight monetary policy stance will be maintained until a significant and permanent decline in the underlying trend of monthly inflation is achieved and inflation expectations converge to the projected forecast range. In the event that a significant and permanent deterioration in inflation is foreseen, the monetary policy stance will be tightened. The decisive stance in monetary policy will reduce the underlying trend of monthly inflation and strengthen the disinflation process through balancing in domestic demand, real appreciation in the Turkish lira, and improvement in inflation expectations.

Taking into account the growth and composition of loans, additional measures have been taken regarding foreign currency loans to support macro-financial stability and the monetary transmission mechanism. In case of developments in the loan and deposit markets outside of expectations, the monetary transmission mechanism will continue to be supported by additional macroprudential steps. Liquidity conditions are being closely monitored, taking into account potential developments. Sterilization tools will be used effectively by diversifying them when necessary.

The Committee will determine its policy decisions in a way that will provide the monetary and financial conditions that will reduce the underlying trend of inflation and reach the 5 percent target in the medium term, taking into account the lagged effects of monetary tightening.

Indicators regarding inflation and the underlying trend of inflation will be closely monitored, and the Committee will decisively use all tools at its disposal in line with its main objective of price stability.

The Committee will make its decisions within a predictable, data-driven, and transparent framework.

The Monetary Policy Committee Meeting Summary will be published within five business days."

DOLLAR TRADING AROUND 32.94

Following the interest rate decision, the Dollar/TL exchange rate maintained its horizontal course.

In the statement made after the meeting, it was stated that the actions determined in the Medium-Term Program (OVP) are being implemented with determination. It was expressed that the increasing interest in the Turkish Lira has strengthened financial stability.

The Dollar/TL, which fell below the 33 level in the new week, traded around 32.94 after the interest rate decision.

In global markets, US President Joe Biden's withdrawal from the presidential race and earnings reports are being followed. Investors are waiting for the earnings reports that Tesla and Alphabet will announce after the New York stock market close today.