Will the CBRT continue to raise interest rates? 'Until a decline in monthly inflation is achieved...'

The Central Bank of the Republic of Turkey has issued a "Press Release on Interest Rates."

Regarding interest rate policy, the statement included the following: "It has been assessed that the current level of the policy rate will be maintained until a significant decline in the underlying trend of monthly inflation is achieved and inflation expectations converge to the projected forecast range."

The following was noted in the statement:

"UNTIL THE FORECAST RANGE IS REACHED..."

"The Monetary Policy Committee (the Committee) has decided to raise the one-week repo auction rate, which is the policy rate, from 42.5 percent to 45 percent.

In December, headline inflation recorded an increase consistent with the outlook presented in the latest Inflation Report. The current level of domestic demand, stickiness in services prices, and geopolitical risks keep inflation pressures alive. On the other hand, recent indicators suggest that the rebalancing in domestic demand, with the reflection of monetary tightening on financial conditions, is proceeding in line with the projected disinflation process. The Committee assesses that the limited improvement in inflation expectations and pricing behavior continues. External financing conditions, the strengthening of reserves, the improvement in the current account balance, and the demand for Turkish lira assets continue to contribute to exchange rate stability and the effectiveness of monetary policy. In this context, the decline in the underlying trend of monthly inflation has continued.

The Committee, taking into account the lagged effects of monetary tightening, has assessed that the level of monetary tightness required to establish disinflation has been reached and that this level will be maintained as long as necessary. The Committee has assessed that the current level of the policy rate will be maintained until a significant decline in the underlying trend of monthly inflation is achieved and inflation expectations converge to the projected forecast range. The monetary stance will be reviewed in case of significant and persistent risks to the inflation outlook.

The Committee is simplifying the current micro- and macroprudential framework in a way that will increase the functionality of the market mechanism and strengthen macro-financial stability. In line with the simplification process, the Committee will support the monetary transmission mechanism with macroprudential decisions against potential volatility in credit supply and deposit rates. In addition to interest rate decisions, the Committee will continue quantitative tightening by increasing the variety of sterilization tools it uses to support the monetary tightening process.

"TARGET IS 5 PERCENT"

The Committee will continue to determine its policy decisions in a way that will provide the monetary and financial conditions necessary to reduce the underlying trend of inflation and reach the 5 percent target in the medium term, taking into account the lagged effects of monetary tightening.

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

The Committee will continue to take its decisions within a predictable, data-driven, and transparent framework."

News Source: 12punto