The Central Bank (CBRT) cut the interest rate by 1,5 percentage points to 9 percent at its meeting today.
In the statement made by the CBRT, it was stated: “The Monetary Policy Committee (Board) has decided to reduce the one-week repo auction rate, which is the policy rate, from 10,5 percent to 9 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. On the other hand, central banks of developed countries emphasize that the rise in inflation may take longer than expected due to high energy prices, supply-demand mismatch and rigidity in labor markets. Depending on the economic outlook that differs between countries, the divergence in the monetary policy steps and communications of the central banks of developed countries continues to increase. 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 took place in the first half of 2022. Leading indicators for the second half of the year, on the other hand, point out that the slowdown in growth continues due to the weakening foreign demand. However, the limited effects of external demand-based pressures on the manufacturing industry on domestic demand and supply capacity are becoming more evident for now. Employment gains are more positive than comparable economies. Considering the sectors that contribute to the increase in employment, it is seen that the growth dynamics are supported by structural gains. While the share of sustainable components in the composition of growth is increasing, the strong contribution of tourism to the current account balance, which exceeds 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 widened significantly recently, with the contribution of the announced macroprudential measures, is closely monitored. The Board will resolutely continue to use its tools to support the effectiveness of the monetary transmission mechanism and will implement additional measures. The policies to be implemented will be announced comprehensively in the Monetary and Exchange Rate Policy for 2023, which will be announced in December.
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. The effects of decreasing foreign demand on aggregate demand conditions and production are closely monitored. In a period when uncertainties regarding global growth and geopolitical risks increase, it is critical that financial conditions be supportive in terms of maintaining the acceleration in industrial production and the increasing trend in employment and the sustainability of structural gains in supply and investment capacity. In this context, the Committee decided to reduce the policy rate by 150 basis points. The Board evaluated that the current policy rate is at a sufficient level considering the increasing risks regarding global demand, and decided to end the interest rate cut cycle that started in August. 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 business days.
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