Central Bank announces highly anticipated interest rate decision!

The Central Bank of the Republic of Türkiye (CBRT) Monetary Policy Committee (MPC) has announced the interest rate decision highly anticipated by the markets.

The committee, meeting under the chairmanship of CBRT Governor Fatih Karahan, raised the policy rate by 500 basis points to 50 percent.

ECONOMISTS EXPECTED IT TO BE HELD STEADY

Economists had predicted that the policy rate would be held steady at 45 percent.

At its previous meeting, the committee had kept the interest rate steady at 45 percent.

The Bank also decided to change its operational framework, setting the Central Bank overnight borrowing and lending rates with a margin of -/+ 300 basis points compared to the one-week repo auction rate.

The Central Bank had raised interest rates by 650 basis points in June, 250 in July, 750 in August, 500 each in September, October, and November, and 250 basis points in December and January.

The following statements were used in the announcement made by the Committee:

"The Monetary Policy Committee (the Committee) has decided to raise the policy rate, the one-week repo auction rate, from 45 percent to 50 percent. The Committee also decided to change its operational framework, setting the Central Bank overnight borrowing and lending rates with a margin of -/+ 300 basis points compared to the one-week repo auction rate.

In February, the underlying trend of monthly inflation was higher than expected, led by services inflation. While imports of consumption goods and gold slowed down, contributing to the improvement in the current account balance, other recent indicators suggest that domestic demand remains resilient. Stickiness in services inflation, inflation expectations, geopolitical risks, and food prices keep inflation pressures alive. The Committee closely monitors the alignment of inflation expectations and pricing behavior with projections, and the impact of wage increases on inflation.

Taking into account the deterioration in the inflation outlook, the Committee has decided to raise the policy rate. The tight monetary policy stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is achieved, and inflation expectations converge to the projected forecast range. Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen. The resolute stance in monetary policy will bring down the underlying trend of monthly inflation through the moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations, and disinflation will be established in the second half of 2024.

The Committee continues to implement macroprudential policies in a way that preserves the functionality of the market mechanism and macro financial stability. In this context, financial conditions were tightened and monetary policy transmission was supported with the regulations made during the month. In case of unanticipated developments in credit growth and deposit rates, the monetary transmission mechanism will continue to be supported. Liquidity developments are closely monitored, and sterilization tools will continue to be used effectively whenever needed.

Taking into account the lagged effects of monetary tightening, the Committee will determine its policy decisions in a way that will provide monetary and financial conditions that will bring down the underlying trend of inflation and reach the 5 percent inflation target in the medium term.

Indicators of inflation and underlying trend of inflation will be closely monitored, and the Committee will resolutely use all the tools at its disposal in line with its main objective of price stability.

The Committee will make its decisions in a predictable, data-driven, and transparent framework."

News Source: 12punto