The Monetary Policy Committee (MPC) of the Central Bank of the Republic of Turkiye increased the one-week repo auction interest rate, which is the policy rate, to 30%.
In the announcement made by the CBRT regarding interest rates, it was stated that the Board, convened under the chairmanship of the Central Bank Governor Hafize Gaye Erkan, decided to increase the policy interest rate to 30%.
In the announcement, it was noted that the Board decided to continue the monetary tightening process in order to establish disinflation as soon as possible, anchor inflation expectations and control the deterioration in pricing behavior.
In the announcement, it was reminded that inflation was above expectations in July and August, and said, “While the strong course of domestic demand and the rigidity in service prices continue, the increase in oil prices and the ongoing deterioration in inflation expectations create additional upward pressure on inflation. These factors indicate that inflation will remain close to the upper limit of the forecast range in the Inflation Report (Report) at the end of the year. It has been evaluated that the cost-oriented pressures and tax regulations arising from wages and exchange rates that have been effective in the recent period have had a significant impact on inflation and that the main trend of monthly inflation will begin to decline. The Board is determined to establish disinflation in line with the path in the Report in 2024, with the effect of monetary tightening steps.”
The announcement included the following statements:
“Increasing demand for Turkish lira assets will contribute to price stability”
Direct foreign investments, improvement in external financing conditions, ongoing increase in reserves, support of tourism revenues to the current account and increasing domestic and international demand for Turkish lira assets will contribute strongly to price stability.
“The Board will continue to make selective credit and quantitative tightening decisions.”
The policy rate will be determined to provide monetary and financial conditions that will reduce the main trend of inflation and reach the 5% target in the medium term. Monetary tightening will be gradually strengthened when and to the extent necessary until a significant improvement in the inflation outlook is achieved.
The Board is simplifying the existing micro- and macroprudential framework in a way that will increase the functionality of market mechanisms and strengthen macro-financial stability. The simplification process will continue gradually, taking into account impact analyses. In this context, regulations to increase the share of Turkish lira deposits strengthen the monetary transmission mechanism. In addition to increasing interest rates, the Board will continue to make selective credit and quantitative tightening decisions that will support the monetary tightening process.
Indicators regarding inflation and its main trend will be closely monitored, and the Board will continue to use all the tools at its disposal with determination in line with the main goal of price stability.
The Board will continue to make its decisions in a predictable, data-driven and transparent framework.
Source: Trthaber / Prepared by Irem Yildiz