SHAFAQNA TURKEY – The Monetary Policy Committee of the Central Bank of the Republic of Turkey raised the discount rate to 17.5 percent with an increase of 250 basis points.
The Monetary Policy Committee raised the discount rate by 650 basis points to 15 percent last month. The rate hike was below market expectations.
The text of the decision of the Central Bank
The text of the decision of the Central Bank included the following provisions:
“The Board of Directors decided to continue the process of tightening monetary policy in order to establish disinflation as soon as possible, anchor inflationary expectations and control deterioration in price behavior.
While global inflation is declining, it continues to hover above long-term averages and central bank targets. For this reason, the central banks of many countries of the world continue the process of tightening monetary policy.
In our country, recent indicators indicate that the underlying trend of inflation continues to rise. Determinants of this development are the strong valuation of domestic demand, cost pressures from wages and exchange rates, and the rigidity of inflation in the services sector. In addition to these factors, the Committee expects that the deterioration of tax legislation and pricing policy will have an additional negative impact on inflation.
With the support of foreign direct investment, a significant improvement in external financing conditions, a constant increase in reserves, and support for tourism revenue, a balanced current account will greatly contribute to price stability.
The discount rate will be determined in such a way as to reduce the underlying trend in inflation and provide monetary and financial conditions that bring inflation to the target level of 5 percent over the medium term. Monetary tightening will gradually increase as needed until a significant improvement in the inflation outlook is achieved.
The Council simplifies the existing micro and macro prudential framework in a way that makes market mechanisms more functional and strengthens macro-financial stability. The simplification process will continue gradually, subject to impact analysis. In this context, the Council decided to selectively tighten credit and quantitative policies to support the monetary tightening process, as well as to raise interest rates.
Indicators relating to inflation and the underlying trend of inflation will be carefully monitored and the Council will continue to use all instruments resolutely in line with its primary goal of price stability.
The Council will continue to make its decisions in a predictable, data-driven and transparent manner.”
The rate hike started last month.
The central bank moved to raise interest rates last month and completed the cut after 27 months.
The board, which held its first meeting last month under new chairman Hafize Gaye Erkan, raised the discount rate to 15 percent, a 6.5 point increase.
The central bank has announced that monetary tightening will gradually intensify. It was stressed that the effectiveness of monetary policy would improve.
The discount rate, which stood at 19 percent in March 2021, has been cut four times in 2021 and 2022. At the meeting in February, the interest rate was reduced to 8.50%.
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