CBRT Raises Interest Rate by 500 Basis Points to 50%

The Central Bank of the Republic of Turkiye (CBRT) announced its interest rate decision. The bank increased the policy rate by 500 basis points. With the interest rate increase, the CBRT changed the operational framework and determined a margin of 3 points over the 1-week repo rate for overnight borrowing.

The Central Bank of the Republic of Turkiye (CBRT) increased the policy rate by 500 basis points to 50%.

The Bank also changed the operational framework and decided that the Central Bank’s overnight borrowing and lending rates will be determined with a margin of -/+ 300 basis points compared to the one-week repo auction interest rate.

The expectation of institutions participating in the Bloomberg HT survey was that the interest rate would be kept constant at 45%.

The following expressions were used in the decision text:

The main trend of monthly inflation in February was higher than expected, led by services inflation. While imports of consumer goods and gold slowed down, contributing to the improvement in the current account balance, other indicators for the near term point to a continuing resilient course in domestic demand. The rigidity in services inflation, inflation expectations, geopolitical risks and food prices keep inflation pressures alive. The Board closely monitors the compliance of inflation expectations and pricing behavior with forecasts and the effects of wage increases on inflation.

The Board decided to increase the policy rate, taking into account the deterioration in the inflation outlook. The tight monetary policy stance will be maintained until a significant and permanent decline in the underlying trend of monthly inflation is achieved and inflation expectations converge to the predicted forecast range. If a significant and permanent deterioration in inflation is predicted, the monetary policy stance will be tightened. The determined stance in monetary policy will reduce the main trend of monthly inflation through balancing in domestic demand, real appreciation in the Turkish lira and improvement in inflation expectations, and disinflation will be established in the second half of 2024.

The Board continues to implement macroprudential policies in a way that protects the functionality of the market mechanism and macro financial stability. In this context, financial conditions were tightened and monetary policy transmission was supported with the regulations made during the month. In case of unforeseen developments in loan growth and deposit interest, the monetary transmission mechanism will continue to be supported. Liquidity developments will be closely monitored and sterilization tools will be used effectively when necessary.

The Board will determine policy decisions in a way that will reduce the main trend of inflation and provide monetary and financial conditions that will bring inflation to the 5% target in the medium term, taking into account the lagged effects of monetary tightening.

Indicators regarding inflation and its main trend will be closely monitored and the Board will resolutely use all the tools at its disposal in line with the main goal of price stability.

Source: Bloomberght / Prepared by Irem Yildiz

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