October 26, 2023 (MLN): Turkey's Central Bank decided to increase the one-week repo auction rate (policy rate) by a staggering 500 basis points, taking it to 35% from 30%, monetary policy statement issued by the Central Bank of Turkey showed today.
This was the central bank's fifth straight hike under the stewardship of Governor Hafize Gaye Erkan to control the inflation which stands at 61.53%.
The Board decided to continue the monetary tightening process in order to establish disinflation as soon as possible, anchor inflation expectations, and control the deterioration in pricing behavior.
Inflation was above expectations in the third quarter of the year. With the cost-oriented pressures arising from wages and exchange rates that have been effective recently, the transition of tax regulations to inflation has been significantly completed.
The strong course of domestic demand, the rigidity in service prices, and the deterioration in inflation expectations continue to put upward pressure on inflation.
In this context, while inflation is expected to remain close to the upper limit of the forecast range in the inflation report at the end of the year, it is also evaluated that the main trend of monthly inflation will decline.
On the other hand, geopolitical developments pose a risk to the inflation outlook due to oil prices.
The board is determined to establish disinflation in line with the path in the report in 2024, with the effect of monetary tightening steps, it added.
Direct foreign investments, the balanced course of external financing conditions, the ongoing increase in reserves, the support of the balancing of demand to the current account, and the increase in domestic and foreign demand for Turkish lira assets will make a strong contribution to price stability.
The policy rate will be determined to provide monetary and financial conditions that will reduce the main trend of inflation and reach the 5% target in the medium term.
Monetary tightening will be gradually strengthened when and to the extent necessary until a significant improvement in the inflation outlook is achieved.
The board is simplifying the existing micro- and macroprudential framework in a way that will increase the functionality of market mechanisms and strengthen macro-financial stability.
The simplification process is progressing gradually, taking into account impact analyses.
In this context, the monetary transmission mechanism will continue to be strengthened with additional steps to increase the share of Turkish lira deposits.
In addition to increasing interest rates, the board will continue to make selective credit and quantitative tightening decisions that will support the monetary tightening process.
Indicators regarding inflation and its main trend will be closely monitored, and the board will continue to use all the tools at its disposal with determination in line with the main goal of price stability.
The board will continue to make its decisions in a predictable, data-driven, and transparent framework.
Copyright Mettis Link News
Posted on: 2023-10-26T16:44:49+05:00
