Central Bank Keeps Policy Rate at 9 percent

The Monetary Policy Committee (Committee) has decided to keep the one-week repo auction rate, which is the policy rate, at 9 percent.

Although the recent data on economic activity have been more positive than anticipated, recession concerns persist in developed economies, due to the impact of geopolitical risks and interest rate hikes. 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, producer and consumer inflation continues to be high on an international scale. The effects of high global inflation on inflation expectations and international financial markets are closely monitored. 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. 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. In addition, financial markets started to reflect on the expectations that the central banks, which increased interest rates against increasing recession risks, would soon end their interest rate hike cycles.

Strong growth was realized in the first three quarters of 2022. Indicators for the last quarter of the year indicate that the slowdown in growth due to the weakening foreign demand is compensated by the relatively strong course of domestic demand. It is observed that the effects of external demand-based pressures on the manufacturing industry on domestic demand and supply capacity remain at a limited level 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 to spread to all months of the year. In addition, the domestic consumption demand, high level 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. As stated in the 2023 Monetary Policy and Liraization text, the Board will resolutely continue to use the tools that will support the effectiveness of the monetary transmission mechanism and will align the entire policy toolkit, especially the funding channels, with the liraization targets.

With the support of holistic policies implemented to strengthen sustainable price stability and financial stability, improvements in the level and trend of inflation began to be observed. 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 Board decided to keep the policy rate constant.

In line with its main objective of price stability, the CBRT will resolutely continue to use all the tools at its disposal until strong indicators pointing to a permanent decline in inflation emerge and the medium-term 5 percent target is reached. The CBRT will implement the Liraization Strategy with all its elements in order to institutionalize price stability in a permanent and sustainable way. 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 formed 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.”