Critical statements from Central Bank Governor Karahan: 'Tight monetary policy will continue'

Central Bank of the Republic of Türkiye (TCMB) Governor Dr. Fatih Karahan stated that they continue to support the tight stance in monetary policy with macroprudential policies. Karahan said, "While the monetary transmission mechanism is strengthening, pricing in financial markets is forming in line with the policy interest rate and expectations."

In his assessment in the foreword of the Financial Stability Report, Central Bank Governor Fatih Karahan explained that they are closely monitoring issues related to financial stability and that they are sharing the latest developments with the public along with the latest issue of the report.

HE DREW ATTENTION TO THE CLARIFICATION OF THE IMPROVEMENT IN THE CURRENT ACCOUNT BALANCE

Reporting that the tightness in financial conditions has been maintained since the previous issue of the Financial Stability Report, Karahan emphasized that the disinflation process is continuing, and highlighted that the tightness in financial conditions contributes to the rebalancing process in domestic demand while the improvement in the current account balance has become more pronounced.

Noting that the tight stance in monetary policy continues to be supported by macroprudential policies and that credit growth is moving in line with the disinflation path with the contribution of the macroprudential framework they have strengthened, Karahan made the assessment: "While the monetary transmission mechanism is strengthening, pricing in financial markets is forming in line with the policy interest rate and expectations."

MONETARY TRANSMISSION MECHANISM HAS STRENGTHENED

Pointing out that the continuation of the disinflation process has increased interest in and confidence in Turkish lira assets, Karahan stated the following:

"The steady rise in the share of Turkish lira deposits continues. The significant decline in the balance of foreign-exchange-protected deposits has strengthened the monetary transmission mechanism and reduced risks on the Central Bank's balance sheet."

Emphasizing that the tight monetary policy they are resolutely maintaining will continue to ensure that deposit interest rates remain at levels that support Turkish lira savings, Karahan explained that the current policy mix supports the improvement of the risk perception regarding the Turkish economy and the decline in the risk premium. Underlining that the borrowing capacity of firms and banks abroad has strengthened as a reflection of this, Karahan made the following assessments:

"With the contribution of the low debt levels of firms, the reflection of the tightening in financial conditions on asset quality indicators has been limited. In addition to the banks' prudent provisioning policies, strong capital and liquidity buffers ensure that risks remain at manageable levels."

News Source: 12punto