March 22, 2024 (MLN): Turkey's Central Bank on Thursday decided to increase the one-week repo auction rate (policy rate) by a staggering 500 basis points, taking it to 50% from 45%, a press release issued by the Central Bank showed.
The Monetary Policy Committee (the Committee) has also decided to adjust the monetary policy operational framework by setting the Central Bank overnight borrowing and lending rates 300 basis points below and above the one-week repo auction rate, respectively.
In February, led by services inflation, the underlying trend of monthly inflation was higher than expected.
While imports of consumption goods and gold slowed down and contributed to the improvement in the current account balance, other recent indicators imply that domestic demand remains resilient.
Stickiness in services inflation, inflation expectations, geopolitical risks, and food prices keep inflation pressures alive.
The Committee closely monitors the alignment of inflation expectations and pricing behavior with projections, and the impact of wage increases on inflation.
In response to the deterioration in the inflation outlook, the Committee decided to raise the policy rate.
"A tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range," it noted.
The monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.
The decisiveness regarding the tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations.
Consequently, disinflation will be established in the second half of 2024.
The Committee continues to implement macroprudential policies in a way to preserves the functionality of the market mechanism and macro financial stability.
In this context, financial conditions were tightened and monetary policy transmission was reinforced with the measures taken in March.
The monetary transmission mechanism will continue to be supported in case of unanticipated developments in credit growth and deposit rates.
Market liquidity will be closely monitored and sterilization tools will continue to be effectively used whenever needed.
Taking into account the lagged effects of monetary tightening, the Committee will make its policy decisions in a way that will create monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5% inflation target in the medium term.
Indicators of inflation and underlying trend of inflation will be closely monitored and the Committee will decisively use all the tools at its disposal in line with its main objective of price stability.
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Posted on: 2024-03-22T09:56:11+05:00
