Breaking News: CBRT Announced its Interest Rate Decision

Breaking News: CBRT announced its interest rate decision. The Central Bank kept the policy rate constant at 17 percent.

Monetary Policy Committee of the Central Bank of the Republic of Turkey (CBRT) announced its policy rate. There was no interest change decision from the meeting, which started at 2 pm. The policy rate, which was 17 percent previously, is not changed.

Economists’ expectation was that the interest rate would be kept constant at 17 percent. In the text of the decision, which emphasized that it was decided to maintain the tight stance for a long time, the following statements were made:

“Economic activity is following a strong course. While the downside effects of the constraints due to the epidemic on the economy are more limited compared to the second quarter of last year, the slowdown in services and related sectors and uncertainties regarding the short-term outlook of these sectors continue. On the other hand, credit growth has started to slow down recently due to the tightening in financial conditions.

Domestic demand conditions, cumulative cost effects, especially the exchange rate, the rise in international food and other commodity prices, and high levels of inflation expectations continue to adversely affect pricing behavior and inflation outlook. It is expected that the slowing effects of the strong monetary tightening which was realized at the November and December MPC meetings on loans and domestic demand will become more evident, thus demand and cost factors that have an impact on inflation will gradually weaken. On the other hand, developments in international commodity prices, increased supply constraints in some sectors, and price and administered price adjustments maintain their importance on the medium term inflation outlook. Accordingly, the Committee, taking into account the 2021 year-end forecast target, resolved to maintain the tight monetary policy stance for a long time until strong indicators are formed that point to a permanent decline in inflation and price stability. Within the scope of strong indicators that point to a permanent decline in inflation and price stability, the underlying trend of inflation and indicators of pricing behavior, diffusion indices, demand and cost factors and inflation expectations will be closely monitored with the targets within the scope of the forecast. If necessary, additional monetary tightening will be made.

In addition to establishing price stability permanently, the tight monetary policy stance will positively affect macroeconomic and financial stability through the decrease in country risk premiums, the onset of reverse currency substitution, an upward trend in foreign exchange reserves and a permanent decline in financing costs.

In its decision-making processes, the CBRT adopts a medium-term perspective and an analysis framework based on all factors affecting inflation and the interaction of these factors. It should be emphasized that all kinds of new data and news to be announced may cause the Board to change its policy stance towards the future.”

CBRT President Emphasized Price Stability

Naci Ağbal, who took office in November, raised the policy interest rate by 4.75 points at the first meeting and by 2 points at the second meeting to 17 percent. In addition, Ağbal emphasized on price stability in every speech and underlined that price stability will be given priority the day after the December meeting.

In his presentation at the GNAT Plan and Budget Committee, Ağbal said the following:

“The positive relationship between price stability and stable and rapid growth stems from the improvement of business and investment environment by ensuring predictability in the economy. Price stability constitutes the most important measure of economic stability and long-term prosperity. Central banks make the greatest contribution to social welfare increase by providing price stability. CBRT will decisively implement the inflation targeting regime. Monetary policy decisions will be taken with the priority of price stability.”

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