During a meeting of the Monetary Policy Committee of the Turkish Central Bank, it was decided to raise the interest rate by 2% to 17%, from 15% to 17%.
In the announcement of the Monetary Policy Committee of the Turkish Central Bank, the following was recorded:
“Data on the global economy indicate the continuation of the partial recovery that began in the third quarter.
However, despite the positive developments related to the Coronavirus vaccine, doubts about the global economy persist due to the recent increase in COVID-19 cases.
National income data and indicators for the last quarter indicate a strong trajectory in economic activity.
However, the restrictions imposed by the increasing number of cases create uncertainty regarding the short-term outlook for economic activity, particularly in the services sector.
On the other hand, domestic demand, bolstered by the cumulative effects of high loan growth during the epidemic period, increases the current account deficit.
Strong monetary tightening
The Turkish Central Bank statement emphasized that the conditions of domestic demand and the effects of the cumulative cost, especially the exchange rate, the rise in food and other global commodity prices and the deterioration of inflation expectations, still negatively affect the pricing behavior and inflation expectations.
Accordingly, the committee decided to conduct strong monetary tightening, taking into account the targeted expectations of the end of the year 2021, in order to eliminate risks related to inflation expectations, control inflation expectations, and restore the process of reducing inflation as soon as possible.
The strict monetary position will be maintained during the coming period, taking into account all the factors affecting inflation, until strong indicators are formed indicating a permanent decline in inflation and price stability.
It has been assessed that the permanent establishment of a low inflation environment will positively affect the macroeconomic and financial stability through reduced premiums for the country ‘s risk, the initiation of reverse currency exchange, the increasing trend in foreign exchange reserves and the permanent decline in financing costs.