Türkiye's Central Bank on Thursday kept its key interest rate unchanged at 50% despite a temporary slowdown in inflation.

In a statement following the meeting, the bank highlighted that the decline in the underlying trend of monthly inflation experienced a temporary pause in May. "Recent indicators confirm that domestic demand, albeit still at inflationary levels, continues to slow down. In addition to the high level of and the stickiness in services inflation, inflation expectations, geopolitical risks, and food prices keep inflationary pressures alive. The Committee closely monitors the alignment of inflation expectations and pricing behavior with projections," the statement read.

The Committee is closely monitoring the effects of monetary tightening on credit conditions and domestic demand. "Considering the lagged effects of the monetary tightening, the Committee decided to keep the policy rate unchanged but reiterated that it remains highly attentive to inflation risks. The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range," the bank added.

The bank emphasized that the monetary policy stance would be tightened further if a significant and persistent deterioration in inflation is foreseen. The current tight monetary stance aims to reduce the underlying trend of monthly inflation through moderation in domestic demand, real appreciation of the Turkish lira, and improved inflation expectations, with disinflation expected in the second half of the year.

In response to potential unanticipated developments in credit and deposit markets, the bank noted that the monetary transmission mechanism would be supported with additional macroprudential measures. Liquidity conditions are being closely monitored, and sterilization will be effectively implemented by enriching the toolset as needed.

"Taking into account the lagged effects of monetary tightening, the Committee will make its policy decisions 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 stated.

The bank emphasized its commitment to closely monitoring indicators of inflation and the underlying trend of inflation. "The Committee will decisively use all the tools at its disposal in line with its main objective of price stability. The Committee will make its decisions in a predictable, data-driven, and transparent framework," the bank asserted.

The summary of the Monetary Policy Committee Meeting will be released within five working days, according to the statement. (ILKHA)