Central Bank Lowered Interest Rate to 12 Percent

Central Bank Lowers Interest Rate to Percent
Central Bank Lowered Interest Rate to 12 Percent

The Central Bank (CBRT) decided to lower the policy rate from 13 percent to 12 percent at its meeting today.

In the statement made by the CBRT, it was stated:

“The Monetary Policy Committee (the Committee) has decided to reduce the one-week repo auction rate, which is the policy rate, from 13 percent to 12 percent.

The weakening effect of geopolitical risks on economic activity around the world continues to increase. Global growth forecasts for the upcoming period continue to be updated downwards, and the assessments that recession is an inevitable risk factor are becoming widespread. 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, the upward trend in producer and consumer prices continues on an international scale. The effects of high global inflation on inflation expectations and international financial markets are closely monitored. However, central banks of developed countries emphasize that the rise in inflation may take longer than expected due to rising energy prices, supply-demand mismatch and rigidity in labor markets. Depending on the economic outlook that differs between countries, the divergence continues in the monetary policy steps and communications of the central banks of developed countries. 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.

Strong growth was observed in the first half of 2022. Leading indicators since the beginning of July point to a slowdown in growth due to the weakening foreign demand. Employment kazantheir outlook is more positive than similar economies. Especially considering the sectors that contribute to the increase in employment, the structural effects of the growth dynamics kazanappears to be supported by While the share of sustainable components in the composition of growth has increased, the strong contribution of tourism to the current account balance, exceeding expectations, continues. In addition, the high course of energy prices and the possibility of a recession 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. In addition, the balance reached by the policy-loan interest rate gap, which has opened significantly recently, with the contribution of the announced macroprudential measures, is closely monitored. The Board will continue to strengthen its tools to support the effectiveness of the monetary transmission mechanism.

In the rise observed in inflation; The lagged and indirect effects of energy cost increases caused by geopolitical developments, the effects of pricing formations far from economic fundamentals, and strong negative supply shocks caused by increases in global energy, food and agricultural commodity prices continue to be influential. The Board foresees that the disinflationary process will begin with the re-establishment of the global peace environment, together with the steps taken and determinedly implemented to strengthen sustainable price stability and financial stability. However, leading indicators for the third quarter point out that the deceleration in economic activity continues due to the declining foreign demand. In a period when uncertainties regarding global growth and geopolitical risks increase, it is 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 Board decided to decrease the policy rate by 100 basis points and evaluated that the updated policy rate is sufficient under the current outlook. In order to institutionalize price stability in a sustainable way, the CBRT continues to review a comprehensive policy framework that encourages permanent and strengthened liraization in all policy instruments. Credit, collateral and liquidity policy steps, whose evaluation processes have been completed, will continue to be used to strengthen the effectiveness of the monetary policy transmission mechanism.

In line with the main objective of price stability, the CBRT will resolutely continue to use all the tools at its disposal within the framework of the liraization strategy, until strong indicators pointing to a permanent decline in inflation emerge and the medium-term 5 percent target is achieved. 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 created 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.”

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