The Central Bank of the Republic of Turkey (CBRT) has increased the policy rate from 42.5% to 46%. The board also raised the overnight lending rate from 46% to 49%. Drawing attention to tension in global trade, the CBRT indicated that monthly inflation would rise in April.

The CBRT raised the policy rate by 350 basis points to 46%. This decision marks the return to a direction of interest rate hikes after 13 months. Expectations had been that the policy rate would remain steady at 42.5%. Additionally, the board increased the overnight lending rate by 300 basis points, moving it from 46% to 49%. The overnight borrowing rate was also raised from 41% to 44.5%.

After the market fluctuations, the CBRT had previously raised the overnight lending rate to 46% in a mid-March meeting.

Starting in December 2024, the Central Bank began a cycle of interest rate cuts, lowering the rate by 750 basis points over three consecutive meetings.

Following the meeting of the Monetary Policy Committee (MPC) chaired by CBRT Governor Fatih Karahan, the following statement was made: RISING EXPECTATIONS FOR MONTHLY INFLATION

“The main trend of inflation decreased in March. Monthly core goods inflation is expected to increase somewhat in April due to developments in financial markets, while service inflation is expected to remain relatively flat.

Leading indicators suggest that domestic demand, while slowing in the first quarter, exceeded expectations and implied reduced disinflationary effects on inflation.

GLOBAL TRADE TENSION EMPHASIZED

The potential effects of rising protectionist tendencies in global trade on global economic activity, commodity prices, and capital flows in relation to the disinflation process are closely monitored. Expectations for inflation and pricing behaviors continue to pose a risk to the disinflation process.

LEAVE ROOM FOR ADDITIONAL STEPS

The determined stance in monetary policy, supported by balance in domestic demand, real appreciation of the Turkish lira, and improved inflation expectations, strengthens the disinflation process.

The increasing coordination of fiscal policy will also contribute significantly to this process. A tight monetary policy stance will be maintained until a lasting decrease in inflation and price stability are achieved. In this context, the policy rate will be determined with the necessary tightness to achieve the expected disinflation process, taking into account inflation developments, main trends, and expectations.

The MPC will determine the steps regarding the policy rate with an inflation-focused, cautious, and meeting-based approach. If a significant and lasting deterioration in inflation is expected, the monetary policy stance will be tightened.

CLOSE MONITORING OF LIQUIDITY CONDITIONS

In light of recent developments in financial markets, additional steps supporting the monetary transmission mechanism have been promptly taken.

Liquidity conditions will be closely monitored and liquidity management tools will continue to be used effectively.”