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Turkey Monetary Policy December 2021

Turkey: Central Bank lowers borrowing costs further in December

The Monetary Policy Committee of the Central Bank of Turkey (CBRT) continued to ease its policy stance at its 16 December meeting, bringing the one-week repo rate down from 15.00% to 14.00%. The decision was largely in line with market analysts’ expectations.

The decision to ease the monetary policy stance further was due to the Bank’s assessment that the recent increase in inflation has been driven by exchange rates as well as “supply constraints in some sectors and a rise in transportation costs”, which are “beyond monetary policy’s control”. Regarding economic growth, the Bank reiterated that domestic activity remains robust, helped by the vaccine rollout as well as solid external demand.

Looking ahead, the Bank reiterated that it will “continue to use decisively all available instruments until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved”. This forward guidance suggests that the latest easing cycle could have come to an end. As such, the majority of our panelists expect some tightening next year.

Muhammet Mercan, chief Turkey economist at ING, added:

“Overall, despite already elevated price and financial stability risks, the CBRT finalised the easing cycle in December as widely expected. The ex-post real policy rate is now deeply negative and will likely further decline in the period ahead to record low levels, increasing uncertainty for the exchange rate and inflation outlook. Given a more challenging external environment with persistent global inflation and signals of gradual tightening by global central banks, a more restrictive stance would likely be needed in the period ahead to anchor expectations and restore price stability.”

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