MPC: Prepare for a July inflation blip

TURKEY - In Brief 23 Jul 2024 by Murat Ucer

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The Monetary Policy Committee kept the policy rate (one-week repo) unchanged at 50% (simple) at today’s meeting, in line with expectations. The statement was almost identical to the previous one except for a new introductory paragraph, which gives a heads up of sorts for the anticipated jump in monthly inflation in July. This addition, which is worth reproducing in full, reads as follows (link here to the full statement): “The underlying trend of monthly inflation registered a notable decline in June. Leading indicators suggest that monthly inflation will rise temporarily in July due to adjustments in administered prices and taxes as well as supply-side factors in unprocessed food prices, which are relatively beyond the control of monetary policy. However, the rise in the underlying inflation is expected to be relatively limited.” Besides this, the statement included a reference to the recent measure that targeted at lower growth in F/X loans and promised more, if need be ( “[b]ased on loan growth and its composition, additional measures were taken for FX loans to support the macro financial stability and the monetary transmission mechanism”; link here to the measure). All in all, today’s meeting was largely a non-event. At the moment, we forecast July inflation at just under 3% (which, given the strong seasonality in July, would correspond to a marked increase in the seasonally-adjusted monthly inflation rate, compared with the relatively subdued June figure). As for the policy rate outlook, we continue to work with a baseline of no rate cuts for this year for now.