The Central Bank left the policy rate unchanged at 8.50%

The Central Bank of the Republic of Turkiye (CBRT) Monetary Policy Committee (MPC) kept the one-week repo auction rate, which is the policy rate, at 8.50%.

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 noted that although the data on economic activity in the recent period were more positive than expected, recession concerns continue in the economies of developed countries due to geopolitical risks and interest rate hikes, and conditions that threaten financial stability, triggered by successive bank failures, 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, it is stated that international producer and consumer inflation maintains high levels, “The effects of high global inflation on inflation expectations and international financial markets are closely monitored.”

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, and financial markets reflect their expectations that central banks will end their interest rate hike cycles soon.

“The strong contribution of tourism to the current account balance, exceeding expectations, continues”

Emphasizing that the leading indicators before the catastrophe of the century, domestic demand in the first quarter of 2023 were more lively than foreign demand and pointing to an increase in the growth trend, the following was noted:

“Current data show that the economic activity in the earthquake region is recovering faster than expected, and it becomes clear that the earthquake will not have a permanent effect on the performance of the Turkish economy in the medium term. While the share of sustainable components in the composition of growth remains 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, the continued increase in 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. 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.

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. The Board will prioritize the creation of appropriate financial conditions in order to minimize the effects of the disaster and support the necessary transformation.”

“The effects of the earthquake in the first half will be followed closely”

In the announcement, it was stated that while the improvements in the level and trend of inflation continue with the support of the holistic policies implemented, the effects of the supply-demand imbalances caused by the earthquake on inflation were closely monitored, and the support of financial conditions in terms of maintaining the acceleration in industrial production and the increasing trend in employment became even more important after the earthquake.

Emphasizing that the Committee’s monetary policy stance is sufficient to support the necessary recovery after the earthquake by preserving price stability and financial stability, and that the effects of the earthquake in the first half of 2023 are closely monitored, the announcement said, “In this context, the Committee has decided to keep the policy rate constant.”

In the announcement, it was stated that the CBRT will resolutely continue to use all the tools at its disposal until strong indicators pointing to a permanent decline in inflation in line with its main objective of price stability and the medium-term 5% target are achieved.

“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: AA / Prepared by Irem Yildiz

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