Following the appointment of Mehmet Şimşek to the Ministry of Treasury and Finance and Hafize Gaye Erkan to the Central Bank, the policy of "low interest rates, which is persistently maintained by the government," was abandoned, and after the elections, interest rates were increased for the third time in a row.
On 22 June 2023, the policy rate was increased by 650 basis points from 8.50 percent to 15.00 percent.
At the MPC meeting held last month, the policy rate was increased by 250 basis points from 15.00 percent to 17.50 percent.
CENTRAL BANK: "INTEREST RATES WILL CONTINUE TO INCREASE"
The Central Bank increased the one-week repo rate by 750 basis points to 25 percent. The market expectation was for an increase of 250 basis points.
"Recent indicators point out that the underlying trend of inflation continues to rise," Central Bank's statement said.
Emphasizing that the rate hike will continue, the statement said, "The Board will continue to take selective credit and quantitative tightening decisions that will support the monetary tightening process, as well as interest rate hikes."
The Central Bank of the Republic of Turkey (TCMB) Monetary Policy Committee (PPK) increased the one-week repo auction rate, which is the policy rate, by 750 basis points from 17.5 percent to 25 percent at the meeting it held with its 3 new members.
In the announcement made by the TCMB regarding interest rates, it was stated that the Board decided to continue the monetary tightening process in order to establish disinflation as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior.
In the announcement, it was noted that the indicators for the near-term point to the continuation of the rise in the underlying trend of inflation.
The strong course of domestic demand, cost pressures stemming from wages and exchange rates, rigidity in services inflation and tax regulations are determinants of this development. In addition to these factors, the deterioration in inflation expectations and pricing behavior, which is more than anticipated due to the rise in fuel prices, indicates that inflation will remain close to the upper limit of the forecast range in the Inflation Report (Report) at the end of the year. However, the Board predicts that disinflation will be established in 2024 in line with the Report, with the effect of monetary tightening steps.
“THE BOARD WILL CONTINUE TO MAKE SELECTIVE LOAN AND QUANTITATIVE TIGHTENING DECISIONS”
In the announcement, it was stated that the Board has simplified the existing micro and macro prudential framework in a way that will increase the functionality of market mechanisms and strengthen macro financial stability, and that the simplification process will continue gradually, taking into account the impact analyses.
In this context, it was stated in the announcement that the regulations to increase the share of Turkish lira deposits will strengthen the monetary transmission mechanism, and it was noted that the Board will continue to take selective credit and quantitative tightening decisions that will support the monetary tightening process as well as increasing interest rates.