Central Bank announces interest rate decision By Investing.com

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Investing.com – The CBRT kept the policy rate unchanged at 19% at the May MPC meeting held today. The exchange rate, which was traded at 8.31 before the decision, decreased to 8.28 after the decision.

The board, which kept the interest rate constant in April, removed the statements from the decision text stating that the tight monetary policy would remain strong. Pointing out in the text of this month’s meeting that there was a decrease in retail loan growth and that despite the rise in commodity prices, the strong upward trend in exports, the significant decline in gold imports and the tightening in financial conditions, the slowdown in loans supported the anticipated improvement in the current account balance, the Central Bank said that inflation will remain above inflation until the inflation target is met. He stated that the interest rate policy will continue.

Decision text:

“The global economy, which contracted sharply in 2020 due to the epidemic, continues to recover with the impact of supportive policies and positive developments in the vaccination process. In this recovery process, especially the acceleration in manufacturing industry activity and global trade are decisive. While commodity prices have increased recently, the effects of rising global inflation expectations on international financial markets remain significant.

Despite the limiting effects of the epidemic, domestic economic activity remains strong. While domestic demand lost some momentum due to the epidemic restrictions, external demand maintains its strength. While manufacturing industry activity displayed a strong momentum, the weak course in the service sectors, which were adversely affected by the epidemic restrictions, continues. However, depending on the course of the epidemic and the vaccination process, there are risks on economic activity in both directions. While a more moderate course is observed in retail loans as well as commercial loans, the permanence of this development is closely monitored in terms of macroeconomic stability. Despite the rise in commodity prices, the strong upward trend in exports, the significant decline in gold imports and the slowdown in loans due to the tightening in financial conditions support the anticipated improvement in the current account balance.

Demand and cost factors, supply constraints in some sectors and high levels of inflation expectations continue to pose risks on pricing behavior and inflation outlook. The slowing effects of monetary tightening on loans and domestic demand began to be observed. Considering the high levels of inflation and inflation expectations, the current stance in monetary policy will be maintained until a significant decrease in the forecast path of the April Inflation Report is achieved. Accordingly, the Board decided to keep the policy rate constant.

The CBRT will continue to resolutely use all the tools at its disposal in line with its main objective of price stability. Until strong indicators that point to a permanent decline in inflation are formed and the medium-term 5 percent target is reached, the policy rate will continue to be set at a level above inflation, maintaining a strong disinflationary effect.

The stability to be achieved in the general level of prices will positively affect macroeconomic stability and financial stability through the decline in country risk premiums, the initiation of reverse currency substitution, 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 the increase in investment, production and employment in a healthy and sustainable manner. “

Author: Necdet Erginsoy

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