Central Bank vows to continue with tightening

ANKARA

The Central Bank of Türkiye has said that the monetary tightening process will continue until a significant improvement in the inflation outlook is achieved.

The bank’s Monetary Policy Committee (MPC) on June 22 decided to lift its policy rate - the one-week repo auction rate - from 8.5 percent to 15 percent, the first rate hike since March 2021.

“The committee sees this decision as the first step of the monetary tightening process that was initiated to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior,” the Central Bank said in minutes of the June MPC meeting.

“Accordingly, the committee decided to implement a monetary tightening process, the steps of which will be strengthened as much as needed in a timely and gradual manner.”

The committee evaluated that the current micro- and macro-prudential framework fell short of supporting the macro-financial stability and distorts the functionality of market mechanisms, it added.

The existing micro- and macro-prudential framework will be simplified to increase the functionality of market mechanisms and strengthen macro-financial stability, the statement said, adding that for a smooth transition period, it was decided to implement a gradual simplification policy.

Meanwhile, newly appointed Central Bank Governor Hafize Gaye Erkan said that the bank will no longer use its foreign exchange reserves to prop up the Turkish Lira.

Erkan met with the heads of Turkish banks on June 23, a day after the rate hike, and made this statement regarding the reserves during this meeting.