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Turkey's central bank left its key interest rate unchanged on Thursday for a second policy session in a row, after a massive hike in March. The Monetary Policy Committee (MPC), led by the new governor Sahap Kavcioglu, kept the one-week repo rate unchanged at 19 percent, the central bank said in a statement. That was in line with economists' expectations. "Taking into account the high levels of inflation and inflation expectations, the current monetary policy stance will be maintained until the significant fall in the April Inflation Report's forecast path is achieved," the bank said.
In the March policy meeting, the MPC led by the former governor Naci Agbal raised the rate by 200 basis points from 17 percent. President Tayyip Erdogan removed Agbal from the top post late March and he was replaced by Kavcioglu.
During Agbal's short tenure of four months, the key one-week repo rate was raised by 875 basis points.
Domestic economic activity is strong despite the restrictions due to the coronavirus pandemic, the central bank noted. External demand remains strong. Manufacturing activity is gaining momentum, while the services sector is impacted by the pandemic restrictions.
"Nevertheless, risks for economic activity exist in either direction depending on the progress of the pandemic and the vaccination process," the bank said. "Despite the rise in commodity prices, the strong upward trend in exports, the significant fall in gold imports and the slowdown in credit amid the tightening of financial conditions support the expected improvement in the current account balance."
Meanwhile, demand and cost factors, supply constraints in some sectors, and high levels of inflation expectations continue to pose risks to the pricing behavior and inflation outlook, the central bank said. Policymakers will continue to use decisively all available instruments in pursuit of the primary objective of price stability, the bank added.
The policy rate will continue to be determined at a level above inflation to maintain a strong disinflationary effect until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is reached, the bank said.
