Last minute: The Central Bank cut the discount rate by 50 basis points!

SHAFAQNA TURKEY – The Monetary Policy Committee (the Committee) has determined that the weekly repo auction rate, which is the policy rate, 9 percent to 8.5 percent decided to download.

The statement included the following:

“While the recently released data on economic activity turned out to be more positive than expected, fears of a recession in the economies of developed countries remain due to the influence of geopolitical risks and higher interest rates. Despite the negative effects of supply restrictions in some sectors, especially in basic foodstuffs, thanks to the strategic decision tools developed by Turkey, international producer and consumer inflation continues to be high. The implications of high global inflation for inflation expectations and international financial markets are being carefully monitored. Depending on the economic outlook, which differs between countries, there remains a discrepancy in the steps of monetary policy and communications of the central banks of developed countries. It was noted that efforts to find solutions using new supporting practices and tools developed by central banks to increase uncertainty in financial markets continue. In addition, financial markets are reflecting expectations that central banks raising interest rates due to recession risks will soon end rate hike cycles.

“EARTHQUAKE IS EXPECTED TO AFFECT ECONOMIC ACTIVITY IN THE NEAR PERSPECTIVE”

– Leading indicators before the catastrophe of the century indicated that domestic demand was more buoyant than external demand in the first quarter of 2023 and that the upward trend was upward. The effects of the earthquake on production, consumption, employment and expectations are assessed comprehensively. While the earthquake is expected to impact economic activity in the near term, it is not expected to have a permanent impact on the performance of the Turkish economy over the medium term. While the share of sustainable components in growth is increasing, the strong contribution of tourism to the current account balance, which exceeds expectations, continues to spread through all months of the year. In addition, domestic consumer demand, high energy prices and weak economic activity in major export markets remain current account risks. For price stability, it is important that the current account balance become constant at a sustainable level. The growth rates of loans and the development of financial resources achieved by economic activity in accordance with its purpose are carefully monitored. As outlined in Monetary Policy and Liraization 2023, the Council will resolutely continue to use instruments that will support the effectiveness of the monetary transfer mechanism and align the entire set of policy instruments, especially funding channels, with the goals of liraization. The Council will prioritize the creation of appropriate financial conditions to minimize the impact of the disaster and support the necessary transformation.

With the support of a comprehensive policy, improvements in the level and trend of inflation have begun to be seen, and the impact of the earthquake-induced supply/demand imbalance on inflation is being carefully monitored. It has become even more important that financial conditions help accelerate industrial growth and employment. As a result, the Committee decided to cut the discount rate by 50 basis points. The Committee believes that such prudent post-discount monetary policy is sufficient to support the needed post-earthquake recovery by maintaining price stability and financial stability. The effects of the earthquake in the first half of 2023 will be closely monitored.

In line with its primary goal of price stability, the CBR will resolutely continue to use all the tools at its disposal until strong indicators emerge that point to a permanent decline in inflation and the medium-term target of 5 percent is reached. The CBRT will implement the Liraization Strategy with all its elements in order to institutionalize price stability on a permanent and sustainable basis. The resulting stability in the overall price level will positively impact macroeconomic stability and financial stability through lower country risk premiums, continued reverse currency substitution and an upward trend in foreign exchange reserves, and a continued decline in financing costs. In this way, a suitable basis will be created for continued growth in investment, production and employment in a healthy and sustainable manner.

The Council will continue to make its decisions in a transparent, predictable and data-driven environment.

The results of the meeting of the Monetary Policy Committee will be published within five working days.”

What did economists expect?

Most economists polled by AA Finans expected the CBR to cut interest rates. While 10 economists said the discount rate, currently at 9 percent, would be cut by 100 basis points, one predicted a 150 basis point cut. Six economists expected the discount rate to remain unchanged.