CBRT kept the policy rate unchanged at 8.50 percent in April despite the annual inflation rising to 50.51 percent due to the Kahramanmaraş earthquake and the sharp depreciation of the Turkish lira. Market expectations were that the interest rate would remain at this level.
Last year, CBRT cut interest rates by 500 basis points in four meetings. Having kept the policy rate unchanged at 9.00 percent in December and January, the bank cut it by 50 basis points to 8.50 percent in February, in line with expectations. In March, it made no change in interest rates.
The Central Bank's decision text emphasized the earthquake and made the following statements:
“In the first quarter of 2023, there were leading indicators pointing to a more buoyant domestic demand compared to external demand and an upward trend in growth. The effects of the earthquake on economic activity, employment, production and expectations are being comprehensively assessed.
Although the earthquake is expected to affect economic activity in the near term, it is expected to have no lasting impact on the performance of the Turkish economy in the medium term. Leading indicators suggest that economic activity in the earthquake zone has recovered faster than expected. It is stated that growth is high due to sustainable components and tourism makes a strong contribution to the current account balance.”
President Recep Tayyip Erdoğan said in recent weeks, “As long as this brother of yours is in power, interest rates will not rise, on the contrary, they will fall continuously. Inflation will also fall along with interest rates.”.