TC Central Bank Raises Policy Rate by 350 bps
The Central Bank’s Monetary Policy Committee (MPC) decided on April 17 to hike its key interest rate, the one-week repo auction rate, from 46 percent to 49 percent, pausing the easing cycle in December last year.
Most economists had expected the bank to keep the benchmark rate on hold this week.
The MPC also increased the overnight lending rate from 46 percent to 49 percent and the overnight borrowing rate from 41 percent to 44.5 percent.
The tight monetary stance will be maintained until price stability is achieved via a sustained decline in inflation, the bank reiterated in a statement accompanying the rate decision.
The policy rate will be determined in a way to ensure the tightness required by the projected disinflation path taking into account realized and expected inflation, and the underlying trend, it said.
The committee will adjust the policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook, according to the statement.
Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen, the bank stressed.
In response to the recent developments in financial markets, additional measures to support the monetary transmission mechanism were swiftly put in place, the statement said, adding that liquidity conditions will continue to be closely monitored and liquidity management tools will continue to be used effectively.
Considering the lagged effects of monetary tightening, the Committee will make its policy decisions so as to create the monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5 percent inflation target in the medium term, the bank said.
“Accordingly, all monetary policy tools will be used decisively,” it added.
Monthly core goods inflation is expected to rise slightly in April due to recent developments in financial markets, while services inflation is likely to remain relatively flat, said the bank in the statement.
Leading indicators point to a level of domestic demand above projections despite some loss of momentum in the first quarter, suggesting a lower disinflationary impact, it noted.
The bank warned that inflation expectations and pricing behavior continue to pose risks to the disinflation process.
The annual inflation rate slowed to 38.1 percent in March, marking its lowest level since December 2021. The monthly inflation was 2.46 percent.
Source: HDN
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