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Central Bank announced interest rate decision: Cut the policy rate from 14% to 13%

The Monetary Policy Committee of the Central Bank of the Republic of Turkiye cut the policy rate by 100 basis points from 14% to 13%.

The Central Bank of the Republic of Turkiye (CBRT) Monetary Policy Committee convened under the chairmanship of Central Bank Governor Sahap Kavcioglu.

At the meeting, where the markets turned their eyes, the one-week repo auction rate, which is the policy rate, was reduced from 14% to 13%.

In the statement made by the CBRT, “The Board evaluated that the updated policy rate level is sufficient under the current outlook.” expression was used.

The following is stated in the press release regarding the bank’s interest rates;

The Monetary Policy Committee (Board) decided to reduce the one-week repo auction rate, which is the policy rate, from 14% to 13%.

The weakening effect of geopolitical risks on economic activity around the world continues to increase. Global growth forecasts for the upcoming period continue to be updated downwards, and the assessments that recession is an inevitable risk factor are becoming widespread. 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 upward trend in producer and consumer prices continues on an international scale. The effects of high global inflation on inflation expectations and international financial markets are closely monitored. However, central banks of developed countries emphasize that the rise in inflation may take longer than expected due to rising energy prices, supply-demand mismatch and rigidity in labor markets. Depending on the economic outlook that differs between countries, the divergence continues in the monetary policy steps and communications of the central banks of developed countries. It is observed that efforts to find solutions with new supportive practices and tools developed by central banks for increasing uncertainties in financial markets continue.

The strong growth at the beginning of the year continued in the second quarter with the positive effect of foreign demand. Employment gains are more positive than comparable economies. Considering the sectors that contribute to the increase in employment, it is seen that the growth dynamics are supported by structural gains. While the share of sustainable components in the composition of growth is increasing, the strong contribution of tourism to the current account balance, which exceeds expectations, continues. In addition, the high course of energy prices and the possibility of a recession 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. The growth rate of the loans and the meeting of the financial resources reached with the economic activity in accordance with its purpose are closely monitored. Moreover, it is evaluated that the policy-loan interest rate gap, which has widened significantly recently, reduces the effectiveness of monetary transmission. In this framework, the Board decided to further strengthen the macroprudential policy set with tools to support the effectiveness of the monetary transmission mechanism.

In the rise observed in inflation; The lagged and indirect effects of energy cost increases caused by geopolitical developments, the effects of pricing formations away from economic fundamentals, and strong negative supply shocks caused by increases in global energy, food and agricultural commodity prices continue to be influential. The Board foresees that the disinflationary process will begin with the re-establishment of the global peace environment, together with the steps taken and determinedly implemented to strengthen sustainable price stability and financial stability. However, leading indicators for the third quarter point to a slight loss of momentum in economic activity. In a period when uncertainties regarding global growth and geopolitical risks increase, it is important that financial conditions are supportive in terms of sustaining the acceleration in industrial production and the increasing trend in employment. In this framework, the Board decided to decrease the policy rate by 100 basis points and evaluated that the updated policy rate is sufficient under the current outlook. In order to institutionalize price stability in a sustainable way, the CBRT continues to review a comprehensive policy framework that encourages permanent and strengthened liraization in all policy instruments. Credit, collateral and liquidity policy steps, whose evaluation processes have been completed, will continue to be used to strengthen the effectiveness of the monetary policy transmission mechanism.

In line with its main objective of price stability, the CBRT will resolutely continue to use all the tools at its disposal within the framework of the liraization strategy, until strong indicators pointing to a permanent decline in inflation emerge and the medium-term 5% target is achieved. 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 formed for the continuation of investment, production and employment growth in a healthy and sustainable way.

The Board will continue to take its decisions in a transparent, predictable and data-oriented framework.

Source: Trthaber / Translated by Irem Yildiz

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