Central Bank (CBRT) Interest Rate Decision Announced

New interest rate decision from the CBRT... At the meeting, the policy rate was cut by 100 basis points to 12 percent. After the decision, the dollar-TL exchange rate broke a new record with 18.40.

A new interest rate decision was announced by the Central Bank (CBRT) Monetary Policy Committee (MPC). In the text of the decision, "Leading indicators for the third quarter indicate that economic activity continued to lose momentum due to the decline in external demand. In a period of heightened uncertainties regarding global growth and geopolitical risks, it is important that financial conditions remain supportive in order to maintain the momentum achieved in industrial production and the upward trend in employment", and "In this framework, the Committee decided to cut the policy rate by 100 basis points and assessed that the revised policy rate level is sufficient under the current outlook". Following inflation exceeding 80 percent, the bank cut the policy rate by another 100 basis points to 13 percent last month. Before the decision, the USD/TL recorded a new historical peak at 18.38, while after the new decision, it renewed its record with the level of 18.40. Although the prominent expectation in the market at the meeting held today was that the interest rate would be kept constant, some economists had expressed the expectation of an interest rate cut. The following statements were used in the published decision text: "The Monetary Policy Committee (the Committee) decided to cut the policy rate, the one-week repo auction interest rate, from 13 percent to 12 percent. Geopolitical risks continue to have an increasingly weaker impact on economic activity around the world. Global growth forecasts for the upcoming period continue to be revised downwards and assessments that recession is an inevitable risk factor are becoming widespread. Although the adverse effects of supply constraints in some sectors, particularly staple food, have been mitigated thanks to the strategic solution tools developed by Turkey, producer and consumer prices continue to rise on an international scale. The effects of high global inflation on inflation expectations and international financial markets are closely monitored. However, central banks of advanced economies emphasize that the rise in inflation may last longer than expected due to rising energy prices, supply-demand mismatch and rigidities in labor markets. Due to the diverging economic outlook across countries, monetary policy actions and communications of central banks in advanced economies continue to diverge. Efforts to find solutions to the increasing uncertainties in financial markets through new supportive practices and instruments developed by central banks continue. Strong growth was observed in the first half of 2022. Since early July, leading indicators point to a slowdown in growth due to weaker external demand. Employment gains have been more favorable compared to similar economies. Growth dynamics are supported by structural gains, especially in sectors that contribute to employment growth. While the share of sustainable components in the composition of growth has increased, tourism continues to make a strong contribution to the current account balance, exceeding expectations. However, the high course of energy prices and the possibility of recession in major export markets keep the risks to the current account balance alive. Maintaining the current account balance at sustainable levels is important for price stability. The pace of credit growth and the utilization of the accessed financing resources by economic activity in an appropriate manner are closely monitored. Moreover, the balance of the policy-credit rate spread, which has widened significantly in the recent period with the contribution of the announced macroprudential measures, is closely monitored. The Committee will continue to strengthen its tools to support the effectiveness of the monetary transmission mechanism. The rise in inflation continues to be driven by the lagged and indirect effects of energy cost increases caused by geopolitical developments, the effects of pricing formations that are far from economic fundamentals, and the strong negative supply shocks caused by the increases in global energy, food and agricultural commodity prices. The Committee expects that the disinflationary process will start once the global peace environment is restored along with the steps taken and resolutely implemented to strengthen sustainable price stability and financial stability. Nevertheless, leading indicators for the third quarter suggest that economic activity continues to lose momentum amid declining external demand. In a period of heightened uncertainties regarding global growth and geopolitical risks, it is important that financial conditions remain supportive to sustain the momentum in industrial production and the uptrend in employment. Accordingly, the Committee decided to cut the policy rate by 100 basis points and assessed that the revised policy rate level was adequate under the current outlook. In order to institutionalize price stability in a sustainable manner, the CBRT is in the process of reviewing a comprehensive policy framework that encourages permanent and strengthened lira appreciation across all policy instruments. The credit, collateral and liquidity policy steps, the evaluation processes of which have been completed, will continue to be used to strengthen the effectiveness of the monetary policy transmission mechanism. In line with its core objective of price stability, the CBRT will continue to use all available tools decisively within the framework of the liraization strategy until strong indicators point to a permanent fall in inflation and the medium-term target of 5 percent is reached. The stabilization in the general level of prices will positively affect macroeconomic and financial stability through the decline 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. This will create a favorable environment for a healthy and sustainable continuation of investment, production and employment growth. The Committee will continue to take its decisions in a transparent, predictable and data-driven framework. The Summary of the Monetary Policy Committee Meeting will be published within five business days.'' Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!