Expectations were for the Central Bank to increase interest rates for the third time in a row.
CBRT increased the policy rate by 750 basis points to 25%.
In the announcement made by CBRT regarding the interest rates, it was reported that the Board, which convened under the chairmanship of Central Bank Governor Hafize Gaye Erkan, decided to increase the policy rate to 25%.
The following statements were used in the decision text:
The Committee decided to continue the monetary tightening process in order to establish disinflation as soon as possible, anchor inflation expectations and control the deterioration in pricing behaviour.
Recent indicators point to a sustained increase in the underlying trend of inflation. This is mainly attributed to the strong course of domestic demand, wage and exchange rate-driven cost pressures, rigidity in services inflation and tax adjustments. In addition to these factors, the higher-than-anticipated deterioration in inflation expectations and pricing behaviour due to the increase in fuel prices suggests that inflation will hover close to the upper bound of the forecast range in the Inflation Report (Report) at the end of the year. Nevertheless, the Committee expects that disinflation will be achieved in 2024 in line with the Report, thanks to the monetary tightening steps.
Foreign direct investments, the improvement in external financing conditions, the ongoing increase in reserves and the support of tourism revenues to the current account will contribute strongly to price stability.
The policy rate will be set to provide the monetary and financial conditions that will reduce the underlying trend of inflation and bring inflation to 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.
The Committee simplifies 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 continue gradually, taking into account the impact analyses. In this context, arrangements to increase the share of Turkish lira deposits will strengthen the monetary transmission mechanism. In addition to rate hikes, the Committee will continue to take selective credit and quantitative tightening decisions to support the monetary tightening process.
Indicators regarding inflation and underlying inflation will be closely monitored and the Committee will continue to use all available tools decisively in line with the main objective of price stability.