Atilla Yesilada: CBRT delivers as expected, more to come

TURKEY - In Brief 21 Dec 2023 by Atilla Yesilada

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I’m subbing for Murat Ucer who is in transit to share my impression of CBRT MPC decision and statement. Murat Ucer will update as and when he sees fit. Gaye Erkan and Co. delivered as widely expected by surveys, raising the policy rate by 250 basis points to 42.5%. The accompanying statement suggested that the current leg of monetary tightening is nearing its end, though in the longer term more might come. CBRT also tweaked macro-prudential rules briefly after the announcement of the rate hike, to soak up excess liquidity in the market and to liberalize the restrictions imposed on bank balance sheets during former governor Kavcioglu’s era. The MPC stated that “Assessing that monetary tightness is significantly close to the level required to establish the disinflation course, the Committee reduced the pace of monetary tightening. The Committee anticipates to complete the tightening cycle as soon as possible”, which suggests to me that another 250 basis point hike is in the making in January meeting. Then, CBRT will pause to assess the results of the tightening this far and outcome of the end—March local elections to set course for the rest of 2024. However, monetary tightening by stealth is expected to continue through other CBRT tools, which in this case happens to be reverse repo auctions, the resumption of which was announced briefly after 2 pm. The CBRT assessment of current economic conditions sounded reasonable to me. The statement reads “The existing level of domestic demand, stickiness in services inflation, and geopolitical risks keep inflation pressures alive. On the other hand, recent indicators suggest that domestic demand continues to moderate as monetary t...