Turkey’s Central Bank Implements New Measures to Support Monetary Tightening
Introduction
Turkiye’s central bank has revealed a set of new measures aimed at supporting a monetary tightening drive. The country’s finance chief believes these measures will help reduce public deficits and lower inflation.
Central Bank’s Recent Policy Rate Cut
Last week, the Central Bank of the Republic of Turkiye (CBRT) reduced its benchmark policy rate by 250 basis points to 17.5%, the highest level since October 2021. The bank also promised further tightening in the future.
New Moves to Support Tightening
The central bank’s new measures to support tightening include raising the monthly maximum interest rate on credit card cash usage and overdraft accounts to 2.89%. This increase, up from the previous 1.91%, is aimed at controlling inflation and balancing domestic demand.
Finance Minister’s Response
Treasury and Finance Minister Mehmet Şimşek expressed his approval of the central bank’s decisions, stating that they are in line with efforts to improve the country’s balance of payments, reduce public deficits, and lower inflation.
Focus on Lowering Current Account Deficit and Inflation
Minister Şimşek explained on Twitter that the central bank’s decisions are primarily aimed at reducing the current account deficit and lowering inflation in the medium term. He emphasized the country’s commitment to channel limited resources into exports and investments.
Recent Policy Changes
Under the leadership of new governor Hafize Gaye Erkan, the central bank has raised its one-week repo rate by 9 percentage points in two monetary policy meetings. This marks a reversal from previous easing measures that saw the bank cut its official borrowing costs from 19% to 8.5% since 2021.
Inflation Expectations and First Inflation Report
The recent interest rate hike was lower than economists’ expectations. Inflation, which cooled to 38.21% in June, is expected to surge by year-end due to the decline of the Turkish lira and various tax hikes. Governor Erkan is set to announce her first inflation report on Thursday, with the central bank’s current year-end inflation projection standing at 22.3%.
Continued Policy Simplification and Selective Measures
The central bank has stated that the simplification of policy will continue gradually. It is also taking selective credit and quantitative tightening decisions to support the monetary tightening process.
Additional Measures
Among other steps, the bank has set the monthly growth limit for lira commercial loans at 2.5%, down from the previous 3%. Export, investment, and agriculture loans are exempt from this limit. Other measures include reserve requirement ratio adjustments, growth limit adjustments for vehicle loans, and credit-restricting measures exemptions for the southeastern region and loans related to earthquakes.
Support for Exporters
Efforts to support exporters’ access to financing include raising the daily limit for rediscount credits to TL 1.5 billion ($56 million).
Turkey’s Central Bank Implements New Measures to Support Monetary Tightening
Introduction
Turkiye’s central bank has revealed a set of new measures aimed at supporting a monetary tightening drive. The country’s finance chief believes these measures will help reduce public deficits and lower inflation.
Central Bank’s Recent Policy Rate Cut
Last week, the Central Bank of the Republic of Turkiye (CBRT) reduced its benchmark policy rate by 250 basis points to 17.5%, the highest level since October 2021. The bank also promised further tightening in the future.
New Moves to Support Tightening
The central bank’s new measures to support tightening include raising the monthly maximum interest rate on credit card cash usage and overdraft accounts to 2.89%. This increase, up from the previous 1.91%, is aimed at controlling inflation and balancing domestic demand.
Finance Minister’s Response
Treasury and Finance Minister Mehmet Şimşek expressed his approval of the central bank’s decisions, stating that they are in line with efforts to improve the country’s balance of payments, reduce public deficits, and lower inflation.
Focus on Lowering Current Account Deficit and Inflation
Minister Şimşek explained on Twitter that the central bank’s decisions are primarily aimed at reducing the current account deficit and lowering inflation in the medium term. He emphasized the country’s commitment to channel limited resources into exports and investments.
Recent Policy Changes
Under the leadership of new governor Hafize Gaye Erkan, the central bank has raised its one-week repo rate by 9 percentage points in two monetary policy meetings. This marks a reversal from previous easing measures that saw the bank cut its official borrowing costs from 19% to 8.5% since 2021.
Inflation Expectations and First Inflation Report
The recent interest rate hike was lower than economists’ expectations. Inflation, which cooled to 38.21% in June, is expected to surge by year-end due to the decline of the Turkish lira and various tax hikes. Governor Erkan is set to announce her first inflation report on Thursday, with the central bank’s current year-end inflation projection standing at 22.3%.
Continued Policy Simplification and Selective Measures
The central bank has stated that the simplification of policy will continue gradually. It is also taking selective credit and quantitative tightening decisions to support the monetary tightening process.
Additional Measures
Among other steps, the bank has set the monthly growth limit for lira commercial loans at 2.5%, down from the previous 3%. Export, investment, and agriculture loans are exempt from this limit. Other measures include reserve requirement ratio adjustments, growth limit adjustments for vehicle loans, and credit-restricting measures exemptions for the southeastern region and loans related to earthquakes.
Support for Exporters
Efforts to support exporters’ access to financing include raising the daily limit for rediscount credits to TL 1.5 billion ($56 million).