After the US Federal Reserve (Fed) increased the interest rate by 75 basis points, the central banks of the world’s leading countries increased interest rates one after the other to reduce inflation, while the Central Bank of the Republic of Turkey (CBRT) lowered the policy rate by 100 basis points to 12 percent. After the announcement of the decision, the dollar/TL rose to 18.4026, equaling the historical peak of 18.3809 reached in the morning. Despite official inflation exceeding 80 percent, the bank cut its policy rate by another 100 basis points to 13 percent last month.
Thus, Turkey President Tayyip Erdoganfrequently lately “We aim to become a member” He entered the Shanghai Five on the interest side by lowering the interest like China and Russia.
Russia lowered, China held steady
The Central Bank of Russia lowered the policy rate from 8 percent to 7.5 percent on September 16, in line with the forecasts. The bank thus made the fifth rate cut since the start of the war.
The People’s Bank of China also kept the 1-year main loan interest rate (LPR) constant at 3.65 percent on September 20.
Shanghai Cooperation Organization, an international organization formed by China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan in 1996, had increased to 5 members in 2001 with the participation of Uzbekistan.
‘The updated policy rate is sufficient’
In the decision text of the CBRT, “Leading indicators for the third quarter point out that the deceleration in economic activity continues due to the decreasing foreign demand. At a time when uncertainties regarding global growth and geopolitical risks increase, it is important that financial conditions are supportive in terms of maintaining the acceleration in industrial production and the increasing trend in employment. it was said and “In this context, the Board decided to decrease the policy rate by 100 basis points and evaluated that the updated policy rate is sufficient under the current outlook.” statements were included. The text of the decision included the following statements:
The Monetary Policy Committee (Committee) decided to reduce the one-week repo auction rate, which is the policy rate, from 13 percent to 12 percent. The weakening effect of geopolitical risks on economic activity around the world continues to increase. Global growth forecasts for the upcoming period continue to be updated downwards, and the assessments that recession is an inevitable risk factor are becoming widespread. Although the negative effects of supply constraints in some sectors, especially in basic food, have been reduced thanks to the strategic solution tools developed by Turkey, the upward trend in producer and consumer prices continues on an international scale. The effects of high global inflation on inflation expectations and international financial markets are closely monitored. However, central banks of developed countries emphasize that the rise in inflation may take longer than expected due to rising energy prices, supply-demand mismatch and rigidity in labor markets. Depending on the economic outlook that differs between countries, the divergence continues in the monetary policy steps and communications of the central banks of developed countries. It is observed that efforts to find solutions with new supportive practices and tools developed by central banks for increasing uncertainties in financial markets continue.
Strong growth was observed in the first half of 2022. Leading indicators since the beginning of July point to a slowdown in growth due to the weakening foreign demand. Employment gains are more positive than comparable economies. Considering the sectors that contribute to the increase in employment, it is seen that the growth dynamics are supported by structural gains. While the share of sustainable components in the composition of growth is increasing, the strong contribution of tourism to the current account balance, which exceeds expectations, continues. In addition, the high course of energy prices and the possibility of a recession in the main export markets keep the risks on the current account balance alive. It is important for price stability that the current account balance becomes permanent at sustainable levels. The growth rate of the loans and the meeting of the financial resources reached with the economic activity in accordance with its purpose are closely monitored. In addition, the balance reached by the policy-loan interest rate gap, which has widened significantly recently, with the contribution of the announced macroprudential measures, is closely monitored. The Board will continue to strengthen its tools to support the effectiveness of the monetary transmission mechanism.
In the rise observed in inflation; The lagged and indirect effects of energy cost increases caused by geopolitical developments, the effects of pricing formations far from economic fundamentals, and strong negative supply shocks caused by increases in global energy, food and agricultural commodity prices continue to be influential. The Board foresees that the disinflationary process will begin with the re-establishment of the global peace environment, together with the steps taken and determinedly implemented to strengthen sustainable price stability and financial stability. However, leading indicators for the third quarter point out that the deceleration in economic activity continues due to the declining foreign demand. In a period when uncertainties regarding global growth and geopolitical risks increase, it is important that financial conditions are supportive in terms of sustaining the acceleration in industrial production and the increasing trend in employment. In this context, the Board decided to decrease the policy rate by 100 basis points and evaluated that the updated policy rate is sufficient under the current outlook. In order to institutionalize price stability in a sustainable way, the CBRT continues to review a comprehensive policy framework that encourages permanent and strengthened liraization in all policy instruments. Credit, collateral and liquidity policy steps, whose evaluation processes have been completed, will continue to be used to strengthen the effectiveness of the monetary policy transmission mechanism.
In line with its main objective of price stability, the CBRT will resolutely continue to use all the tools at its disposal within the framework of the liraization strategy, until strong indicators pointing to a permanent decline in inflation emerge and the medium-term 5 percent target is achieved. The stability to be achieved in the general level of prices will positively affect macroeconomic stability and financial stability through the decrease in country risk premiums, the continuation of reverse currency substitution and the upward trend in foreign exchange reserves, and the permanent decline in financing costs. Thus, a suitable ground will be created for the continuation of investment, production and employment growth in a healthy and sustainable way. The Board will continue to take its decisions in a transparent, predictable and data-oriented framework.
Everyone goes to interest, we go to the opposite: Interest rate has decreased to 13 percent.