21 January 2021
Press Release on Interest Rates
Participating Committee Members
Naci Ağbal (Governor), Murat Çetinkaya, Ömer Duman, Uğur Namık Küçük, Oğuzhan Özbaş, Emrah Şener, Abdullah Yavaş.
The Monetary Policy Committee (MPC) has decided to keep the policy rate (one-week repo auction rate) constant at 17 percent.
Economic activity is on a strong course. Although the downward effects of the pandemic-related restrictions on the economy are more confined compared to the second quarter of last year, the slowdown in activity in services and related sectors and uncertainties surrounding the short-run outlook of these sectors prevail. The strengthening domestic demand, due to the cumulative effects of high credit growth during the pandemic, continues to have an adverse effect on the current account balance. Nevertheless, credit growth has started to slow down amid tighter financial conditions.
Domestic demand conditions, cumulative cost effects, in particular the exchange rate effects, increasing international food and other commodity prices and high levels of inflation expectations continue to affect the pricing behavior and inflation outlook adversely. The decelerating impact of the strong monetary tightening implemented in November and December MPC meetings on credit and domestic demand is expected to become more significant; hence the effects of demand and cost factors on inflation are envisaged to wane gradually. On the other hand, the developments in international commodity prices, supply constraints intensifying in some sectors, and the adjustments in wage and administered prices maintain their importance for the medium-term inflation outlook. Accordingly, the MPC, taking into account the end-2021 forecast target, has decided to maintain decisively the tight monetary policy stance for an extended period until strong indicators point to a permanent fall in inflation and price stability. As regards to the indicators pointing to a permanent fall in inflation and price stability, indicators for the underlying trend of inflation and pricing behavior, diffusion indices, demand and cost factors, and inflation expectations will be monitored closely for their compatibility with the targets in the forecast horizon. Additional monetary tightening will be delivered if needed.
The tight monetary policy stance, besides attaining permanent price stability, will foster macroeconomic and financial stability positively by facilitating the fall in country risk premium, the reversal in currency substitution, the accumulation of foreign exchange reserves and the perpetual decline in financing costs.
In its decision-making process, the CBRT adopts a framework with a medium term perspective, based on analyzing all factors affecting inflation and the interaction between these factors. It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days.