"uncertainty In Markets Necessitates Cautious Stance In Monetary Policy"

- The uncertainty in global markets and elevated food prices necessitated maintaining the cautious stance in monetary policy in Turkey, the Cantral Bank said in the summary of the Monetary Policy Committee meeting.

The Monetary Policy Committee (MPC) had stated that economic activity lost some momentum in the first quarter of the year, said in the summary. "This slowdown was attributed to the weak external demand, the volatile financial markets and adverse weather conditions."

Elevated food prices and the recent exchange rate movements will cause inflation to hover above the level indicated in the January Inflation Report for some time" said in the summary.

"Global markets continue to follow a volatile course. The reduced predictability regarding global economy, the low inflation rates across advanced economies, and the growing uncertainty along with the decoupling of monetary policies cause global markets to remain highly data-sensitive" it said.

The risk appetite and capital flows continued to be volatile, the MPC had pointed out that the measures the the Central Bank had recently taken in terms of foreign exchange liquidity and prudent borrowing were to minimize macro financial risks arising from the uncertainty in global financial markets and global economic activity, said in the summary.

"In sum, the uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy. Accordingly, the Committee decided to keep the interest rates at current levels" it added.

Future monetary policy decisions would be conditional on the improvements in the inflation outlook, including the inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.

Developments on the fiscal policy and tax adjustments were monitored closely with regard to their effects on the inflation outlook, the MPC said in the summary, stating that the baseline monetary policy stance was formulated under the assumption that fiscal discipline will be maintained and there will be no unanticipated hikes on administered prices.

"A revision of the monetary policy stance may be considered, should the fiscal policy deviate significantly from this framework, and consequently, have an adverse effect on the medium-term inflation outlook" the MPC said.