The monetary policy committee (MPC) of Turkey’s central bank on June 27 kept its policy rate unchanged at 50% in line with market expectations (chart).

Disinflation will be established in 2H24 while the central bank would continue to implement macroprudential policies and sterilisation tools, the MPC reiterated.

The next MPC meeting is scheduled for July 23. The rate-setters at this point look set to stick with the 50% benchmark.

In June 2023, following the post-election appointment of Turkey’s new economic team led by finance minister and ex-Wall Street banker Mehmet Simsek, the Erdogan regime U-turned on monetary policy and launched a tightening process that is ongoing.

The policy rate was hiked to 50% by March this year from 8.5% in June last year.

On June 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s consumer price index (CPI) inflation officially stood at 75.45% y/y in May versus 69.8% y/y in April and 38% y/y in June last year.

At 75.45%, TUIK’s inflation series has reached its peak. It will quickly fall back to the 40%s in the next few months thanks to the base effect. 

Pushing the headline figure to below 40% would perhaps prove too much of a stretch for the country’s infamous statistical institute.

On May 9, the central bank hiked its end-2024 official inflation "target" to 38% in its latest quarterly inflation report from the 36% stated in the February report.

The upper boundary of the end-2024 forecast range was pushed up to 42%.

The central bank also foretells that average official monthly inflation will decline to 1.5% in 4Q23.

On August 8, the central bank will release its next inflation report and updated forecasts.

Looking at the global markets, as things stand they do not suggest any notable turbulence. Turkey’s CDS fell below the 300-level, while the yield on the Turkish government’s 10-year eurobonds fell below the 8%-level.

In June, the European Central Bank (ECB) delivered a rate cut while the Federal Reserve (Fed) has been delaying the delivery of its expected rate cut.

Since March, the Erdogan administration has been applying its straight-line USD/TRY rate policy. It has been drawing a line around the 32-level this time around.

In the last few weeks, portfolio inflows have slowed down and reserve accumulation has been turning negative. Thanks to the strong inflows in May, the central bank’s net FX position is in positive territory at the moment.