The Central Bank of the Republic of Turkiye (CBRT) Monetary Policy Committee kept the one-week repo auction rate, which is the policy rate, constant at 8.5%.
In the announcement made by the CBRT regarding interest rates, it was reported that the Board convened under the chairmanship of Central Bank President Sahap Kavcioglu decided to keep the policy rate constant at 8.50%.
In the announcement, it was stated that although the data on economic activity in the recent period were more positive than expected, recession concerns continue in developed countries’ economies due to geopolitical risks and interest rate hikes, and that conditions threatening financial stability, triggered by successive bank bankruptcies, are observed.
Although the negative effects of supply constraints in some sectors, especially in basic food, have been reduced thanks to the strategic solution tools developed by Turkiye, the high levels of producer and consumer inflation on an international scale are maintained. “
In the announcement, it was stated that while the divergence in the monetary policy steps and communications of the central banks of developed countries continues due to the differing economic outlook among countries, coordinated steps have been taken to prioritize financial stability with swap agreements and new liquidity opportunities, it was emphasized that the financial markets reflected the expectations that the central banks will end the interest rate hike cycles soon.
“It is foreseen that the earthquake will not have a permanent effect on the economy”
In the announcement, it was reminded that the leading indicators before the “calamity of the century” indicated that domestic demand was more lively than foreign demand in the first quarter of 2023 and pointed to an increase in the growth trend.
“The effects of the earthquake on production, consumption, employment and expectations are comprehensively evaluated. Although the earthquake is expected to affect the economic activity in the near term, it is expected that it will not have a permanent effect on the performance of the Turkish economy in the medium term. Leading indicators show that the economic activity in the earthquake region is recovering faster than expected. While the share of sustainable components in the composition of growth is high, the strong contribution of tourism to the current account balance, which exceeds expectations, continues to spread throughout all months of the year. In addition, domestic consumption demand, high energy prices and weak economic activity in the main export markets keep the risks on the current account balance alive. It is important for price stability that the current account balance becomes permanent at sustainable levels.”
In the announcement, it was stated that the growth rate of the loans and the meeting of the financial resources reached with the economic activity in accordance with its purpose were closely followed, “As stated in the 2023 Monetary Policy and Liraization Strategy, the Board will resolutely continue to use the tools that will support the effectiveness of the monetary transmission mechanism and will align the entire policy toolkit, especially the funding channels, with the liraization targets.”
In the announcement, it was stated that the Board will prioritize the creation of appropriate financial conditions in order to minimize the effects of the disaster and support the necessary transformation.
In the announcement, it was stated that the effects of supply-demand imbalances caused by the earthquake on inflation were closely monitored, although improvements in the level and trend of inflation began to be observed with the support of the holistic policies implemented. “Supporting financial conditions became even more important after the earthquake in terms of sustaining the acceleration in industrial production and the increasing trend in employment.”
“The effects of the earthquake in the first half will be followed closely”
In this context, in the announcement that the Board decided to keep the policy rate constant, “The Board is of the opinion that the monetary policy stance is sufficient to support the necessary recovery after the earthquake by maintaining price stability and financial stability. The effects of the earthquake in the first half of 2023 will be closely monitored.”
In the CBRT announcement, it was stated that the CBRT will resolutely continue to use all the tools at its disposal until the medium-term 5% target is achieved, and strong indicators pointing to a permanent decline in inflation in line with the main objective of price stability are formed:
“The CBRT will implement the Liraization Strategy with all its elements in order to institutionalize price stability in a permanent and sustainable way. The stability to be achieved in the general level of prices will positively affect macroeconomic stability and financial stability through the decrease in country risk premiums, the continuation of reverse currency substitution and the upward trend in foreign exchange reserves, and the permanent decline in financing costs. Thus, a suitable ground will be created for the continuation of investment, production and employment growth in a healthy and sustainable way.”
In the announcement, it was stated that the Committee will continue to take its decisions in a transparent, predictable and data-oriented framework, and that the summary of the Monetary Policy Committee meeting will be published within 5 working days.
Source: Trthaber / Prepared by Irem Yildiz