Central Bank Holds Policy Rate Unchanged

The Monetary Policy Committee (the Committee) has decided to keep the policy rate (one-week repo auction rate) constant at 19 percent.

The statement made by the Central Bank said: “The global economy, which contracted sharply in 2020 due to the epidemic, continues to recover with the effect of supportive policies and positive developments in the vaccination process. In this recovery process, especially the manufacturing industry activity and the acceleration in global trade are decisive. While the upward trend in commodity prices slows down, the effects of rising global inflation expectations on international financial markets remain important.

Despite the limiting effects of the epidemic, domestic economic activity is strong due to domestic and foreign demand. While manufacturing industry activity displays a strong momentum, the weak course in service sectors adversely affected by the epidemic restrictions continues. However, depending on the course of the epidemic and the vaccination process, there are risks on the economic activity in both directions. Despite the increase in exports and the decline in gold imports, strong domestic demand and commodity prices continue to adversely affect the current account balance. While a moderate course is observed in commercial loans, there is an upward trend in retail loan growth despite the tightening in financial conditions.

Demand and cost factors, supply constraints in some sectors and high levels of inflation expectations continue to pose risks on pricing behavior and inflation outlook. The slowdown effects of the current monetary stance on loans and domestic demand are expected to become evident in the upcoming period. Accordingly, the Committee has decided to maintain the tight monetary stance by keeping the policy rate constant. In line with the main objective of price stability, the CBRT will continue to use all the tools it has at its disposal. Until strong indicators that point to a permanent decline in inflation are formed and the medium-term target of 5 percent is reached, the policy rate will continue to be set at a level above inflation, maintaining a strong disinflationary effect. Stability at the general level of prices will positively affect macroeconomic stability and financial stability through the decline in country risk premiums, the start of reverse currency substitution, the trend of increasing foreign exchange reserves and the permanent decline in financing costs. Thus, a suitable ground will be created for the continuation of the increase in investment, production and employment in a healthy and sustainable manner. The Board will continue to make its decisions in a transparent, predictable and data-oriented framework. "