The Central Bank of the Republic of Turkey (CBRT) announced the second interest rate decision of the year. The policy rate was cut by 50 basis points to 8,5 percent.
In the statement made by the CBRT, it was stated: “The Monetary Policy Committee (Board) has decided to reduce the one-week repo auction rate, which is the policy rate, from 9 percent to 8,5 percent.
Although the recent data on economic activity have been more positive than anticipated, recession concerns persist in developed economies, due to the impact of geopolitical risks and interest rate hikes. 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 Turkey, producer and consumer inflation continues to be high on an international scale. The effects of high global inflation on inflation expectations and international financial markets are closely monitored. Depending on the economic outlook that differs between countries, the divergence in the monetary policy steps and communications of the central banks of developed countries continues. 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. In addition, financial markets reflect the expectations that central banks, which raise interest rates against recession risks, will soon end their rate hike cycles. Leading indicators before the disaster of the century pointed out that in the first quarter of 2023, domestic demand was more lively than foreign demand and the growth trend was on the rise. The effects of the earthquake on production, consumption, employment and expectations are comprehensively evaluated. Although the earthquake is expected to affect the economic activity in the near term, it is expected that it 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 is increasing, the strong contribution of tourism to the current account balance, which exceeds expectations, continues to spread to all months of the year. In addition, 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 text, 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.
With the support of the holistic policies implemented, improvements in the level and trend of inflation began to be observed, and the effects of supply-demand imbalances caused by the earthquake on inflation are closely monitored. It has become even more important that financial conditions are supportive in terms of sustaining the acceleration in industrial production and the increasing trend in employment. In this context, the Committee decided to reduce the policy rate by 50 basis points. The Committee is of the opinion that this measured post-discount monetary policy stance is sufficient to support the necessary 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 main objective of price stability, the CBRT will resolutely continue to use all the tools at its disposal until strong indicators pointing to a permanent decline in inflation emerge and the medium-term 5 percent target is reached. 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 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. The Monetary Policy Committee Meeting Summary will be published within five working days.”