The inflation target of 5 percent is far from being achieved.

SHAFAQNA Türkiye – The summary of the meeting of the CBR Committee on Monetary Policy stated that the Committee would set the discount rate in such a way as to create monetary and financial conditions that would allow the main trend of inflation to decrease and reach the 5 percent level. target in the medium term. The Committee assessed that the current monetary policy framework is far from reaching the 5 percent inflation target, given the inflation outlook and the risks of its upside.

Noting that deteriorating price stability threatens macroeconomic stability and especially financial stability, the closing meeting note states: “In this direction, the Council decided to implement a process of monetary tightening, the stages of which are gradually intensified as necessary. The process of tightening monetary policy is expected to continue until a significant improvement in the inflation outlook is achieved.

First step in tightening rate hikes

The Central Bank published the results of the meeting of the Monetary Policy Committee, at which it raised the discount rate from 8.5 to 15 percent. The central bank stressed that the board sees this decision as the first step in a monetary tightening process that has been initiated to quickly establish disinflation, anchor inflation expectations and control deteriorating price behavior.

In MPC reports, the emphasis was placed on the deterioration of inflation and inflation expectations. In the summary, it was noted that the rigidity of service inflation, the strong position of domestic demand, the appreciation of exchange rates began to be reflected in consumer inflation and the gap between lending and deposit rates, and the Council assessed that the functionality of market mechanisms should be expanded by simplifying the existing micro- and macroeconomic fundamentals along with monetary tightening.

“We need new steps”

In conclusion, it was pointed out that the analysis of the impact of the monetary tightening process on macroeconomic and financial conditions, the impact of interest rate hike scenarios on inflation, credit growth, interest rates, economic activity and banking stress tests were assessed, and it was emphasized that the forecast inflation requires new steps in this direction.

In the MPC briefs, “Inflation and the inflationary trend will be closely monitored and the CBR will resolutely continue to use all the tools at its disposal in line with the main goal of ensuring price stability. The Committee determined that inflation, which is far from the target, requires the effective use of monetary policy. The effectiveness of monetary policy will improve with the beginning of the process of tightening monetary policy.

The MPC summaries also indicated the policy of simplification and stressed that it was decided to make the process gradual and that the speed and order of changes in the simplification process would be determined by the impact analysis.