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Turkish central bank holds all rates steady, maintains tight policy
ISTANBUL, June 19 (Reuters) - Turkey's central bank held its key interest rate steady, opens new tab at 46% on Thursday, as expected and also kept the upper band of its rate corridor at 49% despite predictions it would be lowered.
The central bank's somewhat hawkish rates move effectively prolongs a policy pause ahead of an expected resumption of rate cuts that could come this summer.
The bank said inflation should continue to decline and growth should slow.
"The tight monetary stance will be maintained until price stability is achieved via a sustained decline in inflation," the bank's policy committee said, repeating its past position.
"The underlying trend of inflation declined in May. Leading indicators suggest that this decline continues in June," it added. "Data for the second quarter point to a slowdown in domestic demand."
In April, the central bank raised its policy rate to 46% from 42.5%, reversing an easing cycle that had begun in December following market volatility over the arrest of Istanbul's mayor in March.
The overnight funding rate has been increased by 700 basis points since the mayor's arrest, but in the last week it has dipped to near the policy rate in what analysts said was a signal the bank was preparing the ground for eventual rate cuts.
"The bank has shifted its tone to prepare markets for the beginning of a rate-cutting cycle," said Andrew Birch, Economics Associate Director at S&P Global Market Intelligence.
"If the central bank intends to meet its 24% end-year inflation target, it will need to be cautious in lowering interest rates, due to ongoing market uncertainty."
In a Reuters poll, economists had expected the central bank to keep the one-week repo policy rate steady but cut the overnight lending rate - the upper band - by 150 basis points to 47.5%. Instead, it was held at 49%.
A rate cut is seen as a possibility at the next meeting, on July 24. Reuters polls show that the easing cycle, once restarted, will continue until at least mid-2026.
In May, the central bank held its year-end inflation forecast steady at 24% and vowed to tighten policy if inflation worsens. Annual inflation declined to 35.4% last month.
The central bank said it will adjust policy rate prudently and on a meeting-by-meeting basis and will use all monetary policy tools effectively in case of deterioration in the inflation path.
