The Central Bank of the Republic of Turkey (CBRT) increased the interest rate, which was kept constant at 8.50 percent last month, by 650 basis points to 15 percent. While the interest rate was expected to be announced in the range of 20-25 per cent in the surveys, the new interest rate decision remained below expectations.
The statements made after the decision were as follows:
"The Monetary Policy Committee (the Committee) decided to raise the policy rate, the one-week repo auction interest rate, from 8.5 percent to 15 percent. The Committee decided to start the monetary tightening process in order to establish disinflation as soon as possible, anchor inflation expectations and control the deterioration in pricing behaviour. While inflation is decreasing in the global economy, it is still hovering well above long-term averages. Therefore, central banks all over the world are taking measures to reduce inflation. In Turkey, recent indicators point to an increase in the underlying trend of inflation. This was mainly driven by the strong course of domestic demand, cost pressures and the rigidity in services inflation. In addition to these factors, the Committee anticipates that the deterioration in pricing behaviour will have an additional adverse impact on inflation. The Committee will set the policy rate in a way to create the monetary and financial conditions that will ensure that the underlying trend of inflation decreases and reach the 5 percent target in the medium term. Monetary tightening will be gradually strengthened when and to the extent necessary until the inflation outlook improves significantly. Indicators for inflation and inflation trends will be closely monitored and the CBRT will continue to use all available tools decisively in line with the main objective of price stability. The effectiveness of monetary policy will increase with the start of the monetary tightening process. Moreover, with the aim of maintaining price stability, the CBRT will continue to support strategic investments that will improve the current account balance. The Committee will simplify the existing micro and macroprudential framework in a way to enhance the functionality of market mechanisms and strengthen macro financial stability. The simplification process will be gradual based on impact analyses. The Committee will continue to take its decisions in a predictable, data-driven and transparent framework."
In the decision text, it was stated that monetary tightening will be gradually strengthened when and to the extent necessary until a significant improvement in the inflation outlook is achieved.