CBRT announced its December interest rate decision.
The CBRT Monetary Policy Committee increased interest rates to 42.5% in December with a 250 basis point increase.
CBRT increased the rate to 40% with a 500 basis point interest rate increase in November.
What Was the Dollar's Reaction to the Interest Rate Decision?
As you may remember, in previous meetings it was stated that the low interest policy would be abandoned and interest rates would be increased.
At this point, while the CBRT continues to increase interest rates, the dollar is traded at 29.15 TL after the decision.
The text of the decision is as follows:
“The Monetary Policy Committee (Board) has decided to increase the one-week repo auction interest rate, which is the policy rate, from 40 percent to 42.5 percent.
Headline inflation, which recorded a limited increase in November, remains consistent with the outlook presented in the last Inflation Report. The current level of domestic demand, rigidity in service prices and geopolitical risks keep inflation pressures alive. On the other hand, near-term indicators indicate that the balancing of domestic demand continues as monetary tightening is reflected in financial conditions. The Board also evaluates that a limited improvement has begun in inflation expectations and pricing behavior. The significant improvement in external financing conditions, the ongoing increase in reserves, the support of the balancing of demand to the current account and the strengthening of domestic and foreign demand for Turkish lira assets contribute strongly to exchange rate stability and the effectiveness of monetary policy. In this context, the decline in the main trend of monthly inflation continues.
The Board slowed down the pace of monetary tightening, considering that the level of monetary tightness required to establish disinflation was significantly approached. The Board envisages completing the monetary tightening steps as soon as possible. It has been evaluated that the monetary tightness necessary for the permanent establishment of price stability will be maintained as long as necessary.
The Board is simplifying the existing micro- and macroprudential framework in a way that will increase the functionality of the market mechanism and strengthen macro-financial stability. While loan interest rates are considered to be compatible with the targeted level of financial tightness, it is envisaged that regulations to increase the share of Turkish lira deposits will continue to strengthen the transmission mechanism and improve the funding composition of the banking system, accompanied by monetary tightening. In addition to interest rate decisions, the Board will continue quantitative tightening by increasing the variety of sterilization tools it uses in order to support the monetary tightening process.
The Board will continue to determine policy decisions in a way that will provide monetary and financial conditions that will reduce the main trend of inflation and reach the 5 percent target in the medium term, taking into account the cumulative and lagged effects of monetary tightening.
Indicators regarding inflation and its main trend will be closely monitored, and the Board will continue to use all the tools at its disposal with determination in line with the main goal of price stability.
“The Board will continue to make its decisions in a predictable, data-driven and transparent framework.”
*This is not investment advice.
