The central bank kept its benchmark policy rate unchanged at 37% for the third consecutive meeting on June 11, matching the consensus forecast of economists.
The Monetary Policy Committee also held its overnight lending rate at 40% and its borrowing rate at 35.5%. The central bank last altered its policy rate in January with a 100-basis-point cut. It has maintained a steady stance through March, April, and June following rising regional tensions caused by the war between the US, Israel and Iran. Polling data shows that the median expectation for the year-end policy rate is 35%.
The central bank said that internal demand continues to weaken and economic activity is slowing down. However, volatile global energy markets and high costs driven by nearby conflicts continue to exert pressure on domestic prices.
“Following its rise in the first months of the year, the main trend of inflation, which increased in April with the effect of energy prices, declined slightly in May,” the Monetary Policy Committee said in its decision text. “As a result of uncertainties accompanied by geopolitical developments, volatility and high levels in energy prices continue.”
COMMITMENT TO DISINFLATION
Bank officials emphasized that they will closely monitor the direct impacts of geopolitical risks on local inflation expectations and remain prepared to react defensively if market conditions rapidly deteriorate.
“The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process,” the committee added. “In case of a significant and permanent deterioration in the inflation outlook, the monetary policy stance will be tightened.” The next interest rate meeting is scheduled for July 23.
